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25th Sep 2022

Centre-right leaders prepare economic battle-lines

  • German chancellor Angela Merkel seated by European Commission President Jose Manuel Barroso at the Helsinki meeting (Photo: EPP (Flickr))

Europe's centre-right leaders are gathering in Helsinki to prepare the political family's strategy ahead of two crucial summits on economic issues later this month.

An overhaul of the bloc's emergency lending fund, fiscal discipline and measures to boost economic competitiveness are all high on the agenda of Friday (4 March) evening's meeting.

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"We are preparing for the eurozone summit on 11 March so we can agree on significant measures there to stabilise the euro and strengthen the competitiveness of the EU," German Chancellor Angela Merkel told journalists prior to the talks.

Market participants are watching closely to see whether EU leaders will increase the effective lending capacity of the bloc's €440 billion European Financial Stability Facility (EFSF) later this month, with Portugal's public finances looking increasingly vulnerable in recent days. The fund's actually lending capacity is estimated at closer to €250 billion.

Finnish Finance Minister Jyrki Katainen, the host of Friday's meeting, indicated his support for an increase in the fund's lending capacity, but was less enthusiastic about Ireland's quest to secure a lower interest rate on its recent €85 billion EU-IMF loan.

Irish Prime Minister-elect Enda Kenny, whose Fine Gael party is a member of Europe's centre-right political family, has campaigned for a reduction in the punitive six percent interest rate, but Mr Katainen said there were "no free lunches".

Another Fine Gael call for a markdown on some senior Irish bank debt also appears to have run into opposition, with other EU leaders preferring to delay such an option until 2013.

Berlin meanwhile is keen so see any changes to Europe's emergency lending fund accompanied by tough new fiscal laws and measures to boost the economic competitiveness of member states.

But a Franco-German 'Pact for Competitiveness', including measures to break wage indexation and boost pension reform, met with a frosty reception when it was unveiled in Brussels last month.

In a bid to counter fears that Europe's two largest economies were attempting to dictate policy to others, European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy have since taken up the competitiveness baton.

"We need a community approach," Mr Barroso said mid-way through Friday's talks, stressing the need for stronger European adherence to its economic rules in future.

"The commission is asking everyone to be more strict, to respect agreements, to respect the Stability and Growth Pact [on deficits and debt]. Now if we have a have a competitiveness pact, to respect that competitiveness pact."

But worried that Germany may be increasingly called upon to bail-out its eurozone partners in future, German MPs presented a plan last week to ensure all future loans secure their approval first, as well as indicating their distaste for another idea to enable the EFSF to buy sovereign bonds directly.

At a separate gathering in Athens, Europe's centre-left leaders were also meeting on Friday evening to prepare battle-lines ahead of next week's eurozone summit and an EU leaders' meeting on 24-25 March.

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