28th May 2022

Financial crisis threatens east-west divide in EU

Eastern European member states' fears that they will be left behind by richer EU members in the economic crisis are growing ahead of the informal EU summit on Sunday (1 March).

Poland, the Czech Republic, Slovakia, Hungary, Lithuania, Latvia, Estonia, Romania and Bulgaria are hoping to pull Germany, the Netherlands and Nordic states into a coalition opposing the creation of "eurobonds," Polish officials told daily Gazeta Wyborcza.

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"We want to block the potential eurobond project. To do everything to prevent a two-speed Europe. The introduction of eurobonds for the eurozone only would mean precisely this," Polish deputy prime minister Grzegorz Schetyna said on Wednesday.

A eurobond is a government I.O.U. guaranteed by all 16 members of the single currency group.

The creation of eurobonds would help poorer eurozone members, such as Greece, borrow money more cheaply. But it could make the cost of borrowing go up for the 11, mostly eastern European states, outside the club.

The eurobond idea was floated by Italian finance minister Giulio Tremonti at the Davos economic forum in January and has since been publicly backed by the International Monetary Fund.

Italy has the highest public debt in the eurozone, prompting a rise in the cost for borrowing money on the bond market as investors fear a default.

German finance minister Peer Steinbruck and Carl Heinz Daube, the head of the German debt-issuing agency, the Bundesrepublik Deutschland Finanzagentur, are eurobond sceptics, however.

Leaders from the group of nine eastern EU states will hold a pre-summit meeting together with European Commission president Jose Manuel Barroso at the Polish diplomatic mission in Brussels on Sunday morning.

Polish prime minister donald Tusk will also meet German chancellor Angela Merkel in Hamburg on Friday.

French, Italian and Spanish plans to pump billions into national car industries have also raised worries that western EU states will try to spend their way out of the crisis, no matter what the damage to single market principles.

The fears strike at the heart of the post-2004 enlargement EU project, with former-Communist countries seeing the union as a chance to catch up economically after 60 years of unjust isolation.

"The Brussels summit must show that, while the crisis is hitting individual countries in various ways, the union speaks with one voice. That there is no division into better or worse [EU states]," Polish Europe minister Mikolaj Dowgielewicz told the Polish daily.

"The crisis cannot be an excuse for dismantling the single market."

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