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6th Jul 2022

Van Rompuy warns EU is in 'survival crisis'

  • President Van Rompuy: The EU is in a 'survival crisis' (Photo: Council of the European Union)

EU Council President Herman Van Rompuy has warned that the eurozone and the European Union itself are fighting for their life as a result of the ongoing sovereign debt shocks, most recently in Ireland and Portugal.

"We're in a survival crisis," the president told an event at a Brussels think-tank on Tuesday morning (16 November) ahead of a meeting of finance ministers from countries that use the euro, where it is expected that they will interrogate Ireland and Portugal over the state of government finances.

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Mr Van Rompuy warned that if the eurozone does not survive, neither will the EU. "We all have to work together in order to survive with the eurozone, because if we don't survive with the euro zone we will not survive with the European Union," he said. "But I'm very confident we will overcome this," he added.

EU economic affairs chief Olli Rehn later told reporters that Ireland is now in talks with the European Commission, the European Central Bank and the International Monetary Fund over its ongoing debt crisis. "The commission together with the ECB and IMF and the Irish authorities are working in order to resolve the serious problems of the Irish banking sector," he said.

"I expect the Eurogroup of finance ministers to support this project," he added, stressing that Ireland's finances are otherwise sound for another two quarters: "The Irish sovereign debt is funded well until the middle of next year."

He warned reporters against conflating the Irish situation with that of Portugal and Spain. "Ireland is a very different case," he said.

The two Iberian nations have been heaping pressure on Ireland to access an EU bail-out fund. Madrid and Lisbon are concerned that the ongoing uncertainty over whether Ireland will default on its debts is putting unnecessary upward pressure on the costs of Spanish and Portuguese borrowing, pushing them into a similar situation.

If Ireland accesses the fund, they believe that uncertainty would be lifted, lowering borrowing costs.

Spanish economy minister Elena Salgado said on Tuesday that a bail-out for Ireland may not necessarily take place, depending on what the Irish finance minister says to his colleagues in Brussels. "In no way will it be considered as an inevitable situation. The Eurogroup has to consider it this evening. The first thing the Eurogroup is going to do is listen to Ireland's opinions and then debate them," she told the Spanish parliament.

Irish Europe minister Dick Roche meanwhile denied that he had told a reporter that an Irish bail-out announcement would be made on Wednesday.

In related news, Austria has said it would block another tranche of cash to Greece after EU data published on Monday revealed that Athens had incurred a much larger budget deficit and levels of public debt than the country had earlier estimated.

EU audit figures showed that the Greek government budget deficit for 2009 amounted to 15.4 percent of gross domestic product, sharply up on Athens' earlier estimate of 13.6 percent.

"The statistics give no reason to hand over the money from an Austrian point of view," the conservative People's Party leader and finance minister Josef Proell said. He explained that Greece no longer meets the requirements to access the €190 million in credits Austria would otherwise be due to hand over as part of a €110 billion EU-IMF-ECB bail-out of the country agreed in May this year.

Some economists are not so sure whether the EU will "overcome" the financial crisis, as Mr Van Rompuy believes.

"In the short-term, no country will leave the euro. But in the long scenario, in 15 to 20 years' time, maybe we will see another EU and another currency area. I think the 'euro' name will have to be changed," Christoph Weil, a senior economist at the Commerzbank in Frankfurt told this website.

"The divergence in the euro area is very strong and we see on one side a strong recovery in Germany and similar countries and a recession or stagnation in peripheral countries. This phenomenon will continue in 2011 and this means the tensions will grow further and it will be very difficult [for the European Central Bank] to make the right monetary policy: for Germany the policy will be too expansive and for the peripherals it will be too restrictive."

"I cannot see any way to turn this around."

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