28th Oct 2016

Italy and Spain hold EU growth pact hostage

  • Italian leader Monti and Germany's Merkel in Brussels on Thursday (Photo:

Spain and Italy were late on Thursday (28 June) refusing to sign up to a eurozone growth compact unless they got a deal on short-term measures to help their troubled economies.

Both countries followed through on tough rhetoric ahead of the summit in Brussels - that they need immediate help to bring down their borrowing costs.

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Italian leader Mario Monti had been particularly combative, indicating he cannot return to Italy - where he has pushed through harsh reforms - without some sort of reward.

Italy is seeking a deal that would see a new mechanism buy its government debt - a move that should help to lower the borrowing rates. Spain wants its struggling banks to be directly funded by the eurozone bailout fund, rather than via the state.

"Right now the price of credit in Spain is too expensive and I believe the European Union must be conscious of this," said Prime Minister Mariano Rajoy ahead of the summit.

Their holding out deprived EU leaders of an expected mid-evening announcement on the growth pact. The growth agreement had meant to be an agenda shoo-in amid a host of far more difficult issues.

Instead, EU council President Herman Van Rompuy announced that elements of the growth pact were in place, but full agreement had not yet been reached.

The measures include increasing the funds of the European Investment Bank, redirecting unused EU aid money and investing in infrastructure projects. The entire pact amounts to €120 billion.

"Hopefully we'll agree tomorrow," said Danish Prime Minister Helle Thorning-Schmidt.

"I wouldn't say there is any blockage. There is no gridlock. We are continuing our work," said Van Rompuy.

The impasse delayed the summit considerably. EU leaders headed into their dinner only at around 11pm Brussels, around seven hours after the summit started.

Aside from dealing with Spain and Italy's demand, the 27 member states are also due to discuss a seven-page plan towards fiscal and monetary union.

The plan suggests mutualising debts in the medium term, setting up a banking union and eventually establishing an EU treasury and finance minister.

Even greater powers of budgetary surveillance would be transferred to Brussels.

Member states went into the summit divided on several elements in the paper.

Sweden knocked back ideas for a banking union. Germany maintained its longstanding opposition to eurobonds and said the balance of the paper was wrong.

Meanwhile, the Netherlands is against debt mutualisation and more EU-level oversight.

Adding to the summit's woes is disagreement on where to house the EU's patent court.

Berlin, London and Paris have been tussling over the matter for months, in the final chapter of a decade-long EU saga to create a single European patent.

A compromise presented by Denmark to put parts of the patent court in all three offices unravelled during the talks.

It's a difficult issue "psychologically," said Van Rompuy.

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