European leaders are weighing the possibility of using the eurozone’s financial rescue fund to make direct debt purchases from Italy and Spain as a way to ease the surging borrowing costs both countries are faced with on the world’s financial markets.
European heads of state were engaged in sharp discussions Thursday in Brussels, their 20th summit on the continent’s unrelenting debt crisis. They were under new pressure to calm international financial markets wary about the fate of the euro currency and at the same time ease the financial burden for debt-ridden Italy and Spain.
Both Rome and Madrid, with the eurozone’s third and fourth largest economies, have watched in recent days as the interest rates on their loans have soared to near the 7 percent level. That is the mark at which much smaller Greece, Ireland and Portugal all were forced to secure international bailouts in the last two years.
If Italy and Spain used the eurozone’s bailout fund for their debt sales, it could cut their borrowing costs because they no longer would be subject to the whims of speculators on world markets.
Spanish Prime Minister Mariano Rajoy warned this week that his government will not be able to sustain its high borrowing costs for much longer. He won support from French President Francois Hollande, who said as he arrived at the summit that he was looking for “very quick solutions” to support Italy and Spain.
EU economics chief Olli Rehn predicted that the European leaders would adopt measures to calm financial markets and help Italy and Spain.
“I trust that we will have a possibility to take decisions in the European summit that will help to stabilize the financial markets in the short term, and help to reduce borrowing costs of countries like Italy and Spain. This is one element of our comprehensive crisis response that should be decided in the summit.”
European Council President Herman Van Rompuy said the continent’s leaders need to act quickly.
“Reviving growth in our economies and creating jobs, especially for young people, requires immediate action. Restoring confidence in our currency calls for stability today and a credible perspective for the future.”
Efforts to ease the plight of Italy and Spain overtook the initial summit focus on Germany, which has the currency bloc’s most robust economy.
Some European leaders are advocating the sale of eurobonds, debt supported by the entire 17-nation eurozone, not just individual governments. But Berlin has opposed their adoption, fearing that its borrowing costs could jump even as those for weaker governments drop.
German Chancellor Angela Merkel this week called eurobonds “economically wrong and counterproductive.” But finance minister Wolfgang Schaeuble signaled Germany may be shifting in its adamant opposition.
He told a U.S. business publication, The Wall Street Journal, that Germany could agree to some form of shared eurozone debt if it is convinced that the move toward central European control over the spending practices of the eurozone’s individual governments is “irreversible and well-coordinated.” He said there would be no common bonds “without a common fiscal policy.”
The summit could endorse a new $162 billion package to boost the eurozone’s stagnant economy, which Ms. Merkel says she supports. The figure amounts to about 1 percent of the eurozone economy, but the effect of the spending is uncertain because most of the money had already been earmarked for development projects.
(Photo: evangelos vlasopoulos/sxc.hu)