Wednesday

27th Oct 2021

EU summit delayed as France, Germany tussle

  • Van Rompuy says more time is needed to discuss eurozone issues ahead of a summit (Photo: consilium.europa.eu)

European Council President Herman van Rompuy has delayed by a week a planned summit of the bloc’s leaders in order to give more time for behind-the-scenes negotiations on plans to bring an end to the eurozone crisis.

Van Rompuy first tweeted the news of the delay mid-afternoon on Monday (10 October), and later said that he had “decided to convene” the EU Council and subsequent eurozone summit on 23 October, a Sunday instead of the originally planned two-day event from 17-18 October.

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“This timing will allow to finalise our comprehensive strategy on the Euro area sovereign debt crisis covering a number of interrelated issues,” he said.

The announcement comes in the wake of an inconclusive meeting between the EU’s two economic powerhouses, France and Germany, on Sunday.

Leaders Angela Merkel and Nicolas Sarkozy ended a discussion in Berlin with little fresh to announce other than a commitment to have a plan in place by the end of the month.

Berlin and Paris are divided over whether a second round of bail-outs of European banks should be performed by national governments or the eurozone’s rescue fund, the European Financial Stability Facility.

France wants the EFSF to perform the task, in effect sharing the burden of bank recapitalisation across the euro area in order to stave off a downgrade in the country’s triple-A credit rating.

French banks are heavily exposed to sovereign debt in the EU periphery and the state will have to stump up significant sums to bail its financial institutions out, a move that will hike its public debt levels. This in turn will likely draw the ire of credit rating agencies.

Germany for its part is less exposed and would prefer the EFSF to be used only if states themselves are incapable of funding the bank bail-outs.

The International Monetary Fund has estimated that it will cost the EU as a whole some €200 billion to recapitalise its troubled banking sector.

Sarkozy and Merkel are also divided over whether to accept a sovereign default by Greece. The German finance ministry is understood to be planning for this possibility while France is opposed, again as a result of the level of its exposure to peripheral debt. Berlin for its part feels that a Greek default is inevitable and that a controlled default is preferable to the chaos that could ensue in the alternative scenario.

Van Rompuy said nevertheless that negotiations on a range of items are progressing well.

“Significant progress has been accomplished in the implementation of the July package. The 6-pack [of legislation delivering greater economic centralisation in Europe] has been approved. The European Financial Stability Facility (EFSF) ratification process is nearing completion. Consultations on the Eurozone governance have progressed well,” he said in a statement.

However, he did concede that there were topics that remained unresolved.

“Further elements are needed to address the situation in Greece, the bank recapitalisation and the enhanced efficiency of stabilisation tools - EFSF,” he said.

Carsten Brzeski, a senior economist with ING Bank in Belgium, told EUobserver that the delay is probably both good and bad news.

“It is probably both. A bad sign as it shows that, despite Sunday’s feel-good press conference, Germany and France are still not on the same page,” he said. “As so often, the devil is in the detail, particularly when it comes to the issue of bank recapitalisations and Greek debt restructuring.”

“However, to give it at least some positive touch, postponing it to a Sunday shows at least the commitment to come up with a credible solution,” he said.

French banks hit amid worries over Greek exposure

Major French banking stocks were pummelled on Monday on the back of persistent worries that Greece is on the verge of defaulting on its loans. As shares tumbled, EU leaders have scrambled to get ahead of the curve.

Merkel, Sarkozy will do ‘whatever necessary’ to bail-out banks

Financial markets hoping for the outline of some grand strategy for dealing with the ever-worsening eurozone crisis are likely to be disappointed by the vague announcement offered up by the French president and German chancellor after emergency talks in Berlin on Sunday.

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