EU seeks new strategy for euro at Brussels summit

EU leaders at Brussels summit are examining how to ease the eurozone debt crisis amid competing visions about how to revive the worst-hit economies.

As the Brussels summit opened, French President Francois Hollande made a new plea for EU solidarity and Spain warned that its borrowing costs were too high.

German Chancellor Angela Merkel scorned talk of pooling eurozone debt, saying it would require more budget rigor.

But there appears to be broad agreement on new measures to stimulate growth.

On arrival at the summit, UK Prime Minister David Cameron said “these are hard decisions for the eurozone countries to make and we should be encouraging them to go ahead”.

But when asked about plans for transferring more budgetary powers to the EU level David Cameron said: “I… in many ways share people’s concerns about Brussels getting too much power.”

European authorities have unveiled proposals such as the creation of a European treasury, which would have powers over national budgets.

The 10-year plan is designed to strengthen the eurozone and prevent future crises, but critics say it will not address current debt problems.

Spanish 10-year government bonds were trading at yields above 6.9% on Thursday morning, coming close to the 7% considered unaffordable.

Spain’s Prime Minister Mariano Rajoy said debt sustainability was a pressing problem.

“We are paying rates that are too high to finance ourselves and there are many Spanish public institutions that cannot finance themselves.”

Spanish and Italian leaders are worried that their countries could soon – in effect – be shut out of international markets and forced to seek assistance.

The debate about short-term fixes could become very bitter indeed.

Angela Merkel has warned there is no “magic formula” to solve the crisis.

Several EU leaders want individual countries’ debts guaranteed by the whole eurozone, for instance in the form of centrally issued eurobonds.

But Angela Merkel told the German parliament on Wednesday that eurobonds were “the wrong way” and “counter-productive”, adding: “We are working to breach the vicious circle of piling up debt and breaking [EU] rules.”

She said to loud applause: “Joint liability can only happen when sufficient controls are in place.”

Stronger competitiveness was the condition for sustained growth, the chancellor said.

Francois Hollande believes eurobonds should be a eurozone priority for helping countries like Italy and Spain bring their borrowing costs down.

But Angela Merkel continues to insist that before anything is done to increase the burden on German taxpayers, building blocks towards greater fiscal, banking and, eventually, political union must be put in place.

There is certainly a chance that the summit will take a small step on a path that would partly deal with the fundamental weaknesses in the eurozone.

But in the absence of major short-term action, he explains, borrowing costs for countries such as Spain and Italy are likely to remain painfully high, making the eurozone’s financial situation strained for a long time to come.

Angela Merkel said progress had been made on a pact for growth and she hoped European leaders would adopt a 130 billion-euro ($162 billion) stimulus package.

Francois Hollande, who was elected French president on an anti-austerity ticket, said on Thursday there were “points in common on growth”.

“Merkel has moved in the direction I wanted,” he told French TV channel France 2.

Adding that he and the German leader had also agreed on the financial transaction tax, he said they still needed to find agreement “on stability”.

“There are ongoing discussions, it’s normal,” he said.

“We need to act in support of the countries which need it: Spain and Italy.”