Informal European Council
Shift in EU power balance as growth takes centre stage
By Sarah Collins | Thursday 24 May 2012
EU leaders, meeting for an emergency summit on 23 May, failed to outline a decisive plan to revive growth in the 27-member bloc despite more than six hours of talks, delaying an accord on a ‘growth compact’ to a further meeting in June. But the summit marked a more important shift in the power balance in the bloc, with France’s new Socialist President François Hollande effectively ending his predecessor’s special relationship with Germany.
Gone were the pre-summit accords forged by Hollande’s predecessor Nicolas Sarkozy with German Chancellor Angela Merkel. Instead, senior officials said the atmosphere at the meeting was much freer and more relaxed than previous talks, with all 27 countries around the table proposing solutions to the crisis or merely listing the hardships they faced in their own economies. Hollande even travelled to Brussels by train with Spanish Premier Mariano Rajoy and walked into the meeting room with Italian interim leader Mario Monti, both of whom share many of his ideas on growth, eurobonds and an expanded role for the European Central Bank.
“Our discussions tonight were focused and frank,” European Council President Herman Van Rompuy said of the meeting, where Hollande said he urged leaders to “fuel the motor of growth”. EU leaders will come back to the growth plan in June, which will include the launch of project bonds to raise private capital for energy, transport and broadband upgrades, a possible boost in EIB capital and reallocation of the EU’s Structural Funds to help economies in recession. But the meeting was also the occasion for more radical ideas to be raised, including eurobonds, expanding the eurozone bailout fund and creating pan-European bank guarantees. To that end, Van Rompuy is to draw up a report with Commission President José Manuel Barroso and Eurogroup head Jean-Claude Juncker on ways to step up further integration in the eurozone. “After June the real work will start,” Van Rompuy said.
WHAT THEY DISCUSSED
Project bonds: An accord was reached this week in three-way talks between MEPs and governments on a Commission proposal to release €230 million from the EU budget to fund a pilot round of issuances. The bonds would be issued by a company or group of companies seeking to build a new rail or road link, for example, backed by EU cash and EIB guarantees - up to a limit - with a view to making them more attractive to long-term investors, such as pension funds and insurance firms.
EIB funding: It is still unclear how much of capital increase the EIB could get. The Commission has suggested a €10 billion boost but a central problem remains - to maintain its ‘triple A’ rating the EIB is keen to pare back lending to bailed-out and stressed states, which are most in need of help.
Structural Funds: The Commission has suggested the possibility of reallocating Structural Funds away from poorer states to those that need them and can spend them more quickly. However, officials indicate that the plan is still up in the air. Barroso has also suggested using the unspent funds - estimated at €82 billion earlier this year - to collateralise EIB loans for countries with lower credit ratings.
Using the ESM for bank recapitalisations: Currently, the eurozone’s bailout fund, the European Stability Mechanism, is only allowed to lend to banks via sovereigns, thereby increasing government debt in the process. Spain, France, Ireland and several other states support giving the fund a banking licence and allowing it access to European Central Bank funding so that it can provide support to ailing eurozone banks. Germany is adamantly opposed to the move.
Bank resolution and deposit guarantee funds: Leaders touched briefly on the possibility of creating pan-European deposit guarantee and resolution funds to wind down failing banks. Internal Market Commissioner Michel Barnier is working on a proposal on bank resolution, which has been in the ether for more than two years. It is due for release in June.
Eurobonds:Still a divisive issue between France and Germany, with Hollande insisting they be introduced sooner as a way to fuel growth, while Merkel says they should be the end result of a process of eurozone integration. Officials say they are not off the table but will not be introduced any time soon.