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EU leaders seek tighter coordination

Source: Reuters - Thu 17th Jun 2010

European Union leaders began talks on Thursday on ways to strengthen budget discipline and economic policy coordination, hoping to show financial markets they can see off a euro zone debt crisis.

They will also discuss tightening financial regulation to prevent another global economic crisis, including a levy to make banks pay for future crises, and pressure is rising for Europe to publish results of stress tests that check banks' liquidity.

The 27 member states, which represent more than 500 million people, have agreed on a 500 billion euro (417 billion pounds) safety net to help struggling countries that use the euro and a 110 billion euro aid mechanism for heavily indebted Greece.

But despite repeated denials, national leaders and the executive European Commission have failed to allay concern that Spain will follow Greece by seeking financial help.

"I think Europe is still in a fragile situation when it comes to public finances" Swedish Prime Minister Fredrik Reinfeldt said on arrival for the one-day summit in Brussels.

"I think we need to show leadership and determination on Europe ... and coordinate the measures needed."

Luxembourg Prime Minister Jean-Claude Juncker, who heads the Eurogroup of finance ministers from countries that use the euro, acknowledged in a newspaper interview that Spain faced problems but said it would not be a specific item on the leaders' agenda.

A show of unity is likely at the summit, which will review the findings of a task force established to look at reforms designed to prevent debt building up, increase cooperation and set up a permanent aid mechanism for countries in debt trouble.

No formal agreement will be made on how to deepen policy coordination, but any sign of divisions could increase the market nervousness that has helped drive down the euro and shares globally this year.


The leaders broadly agree on the need for closer economic policy coordination, or "economic government" and on the need for tighter financial regulation, but do not see eye to eye on how to go about it.

Differences linger between German Chancellor Angela Merkel and French President Nicolas Sarkozy, who lead the 16-country euro zone's biggest economies, despite agreement on some issues at talks on Monday.

Germany wants tighter budget discipline and favours changes to the EU treaty, if needed, to impose stronger sanctions on countries that fail to meet budget targets. France has avoided the rigour sought by Germany.

Sarkozy bowed this week to some of the German demands but EU diplomats say there is a long way to go to convince the markets and get through the crisis.

Britain, for example, is hostile to key parts of the drive towards closer budget surveillance and says it will not allow its budget plans to be submitted to the European Commission for review before the national parliament.

British Prime Minister David Cameron, attending his first EU summit, made clear he would stand his ground but said after talks with European Commission President Jose Manuel Barroso that he wanted to help Europe boost its economic growth.

"We of course always defend our national interests as others do, and our national red lines, but we know how important it is that there is in Europe growth and confidence and that, I think, is the most important issue on the agenda" Cameron said.

The EU economy grew by only 0.2 percent in the first quarter of 2010 compared with the previous three months and the leaders will approve a strategy called Europe 2020 for boosting growth and creating jobs in the next decade.

The unemployment rate is running at 9.7 percent in the EU and 10.1 percent in the euro zone.


Fears remain that Spain, which has a closely watched bond auction on Thursday, or Portugal will suffer a Greek-style crisis but EU leaders have been at pains to praise austerity moves announced by both euro zone countries.

The leaders are expected to press on with moves towards a European banking levy after the world's top economies failed to agree on such a tax for an industry seen as one of the main culprits behind the global economic meltdown.

They aim to agree a joint position for the G20 summit in Toronto on June 26-27.

Pressure also is mounting for European regulators to publish results of stress tests on individual banks to restore market confidence and overcome a partial freeze in interbank lending.

Finland's finance minister said on Wednesday that support for more transparent bank stress tests was growing in Europe, but not all agree on this issue.

"We have been asking for increased transparency all the time ... but I know that there are some differences in the positions sometimes regarding this" Sweden's Reinfeldt said.

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