The Wall
Street Journal
At the
two-day summit, the leaders of Spain ,
Italy and France are
expected to pitch ideas for easing the crisis that will be mostly deflected by
German Chancellor Angela Merkel, whose country would finance most of them.
Some
European Union leaders are urging decisive action: "I think it is very
important that this [summit] rules out any doubt about the irreversibility of
the euro," said José Manuel Barroso, head of the European Commission, the
EU's executive arm.
The leaders
will discuss how euro-zone economies can move toward tying their budgets and
banking systems closer together based on a report put together by senior
European Union officials. But markets aren't optimistic about major progress.
"The
only element this week's summit could already decide is a European bank
supervision, which could be regarded as a first step towards a banking
union," said Carsten Brzeski, senior economist at ING in Brussels .
Ms. Merkel
acknowledged in Berlin
on Wednesday that the meeting could be a tough one for her. "I have no
illusions. I expect controversial discussions in Brussels
and once again all eyes, or at least many eyes, will be on Germany ,"
Ms. Merkel told lawmakers in the Bundestag.
As she spoke,
Spanish Prime Minister Mariano Rajoy had just told his own Parliament that Spain couldn't
sustain super-high interest rates on its debts for much longer. The day before,
Italian Prime Minister Mario Monti said he was prepared to stay in Brussels until Sunday if
that's what it took to forge a credible solution to the euro zone's worsening
troubles.
Ms. Merkel
told the Bundestag that Germany wouldn't solve the euro zone's problems on its
own, for instance by allowing the creation of joint euro bonds—backed by all 17
members of the currency union—that could lower Italian and Spanish funding
costs, or other measures to provide a quick fix.
"I
fear that at the summit, once again, there will be way too much talk of all
kinds of ideas for joint liability and way too little about improved controls
and structural measures," she said.
Ms. Merkel
did leave some possible room for maneuver on banks, however, calling for a
powerful European supervisor to oversee the Continent's biggest banks and
saying that the first steps in that direction should be taken "very
soon."
"The
situation in Spain
shows clearly how important it is to focus more on the banking sector and to
lower the risk of contagion between banks and public finances," she said.
A promise this monthearlier this month from the rest of the euro zone to lend Madrid as much as €100
billion ($125 billion) to support its banks hasn't stemmed rising interest
rates.
But other
leaders suggest there is no time to count on longer-term solutions.
French
President François Hollande will push his counterpartsto allow the euro zone's
bailout fund, the European Stability Mechanism, to directly prop up failing
banks, rather than forcing governments to take on huge debts to bail out their
lenders, a French official said Wednesday. Messrs. Rajoy and Monti, meanwhile,
have asked for market intervention from the euro zone's rescue funds or the
European Central Bank to lower yields on their government bonds.
"We
can't finance ourselves at current prices for too long," Mr. Rajoy said.
"There are many institutions and financial entities that have no market
access. It's happening in Spain ,
it's happening in Italy
and in other countries, that's why this is a crucial issue."
Angel
Gurría, the secretary-general of the Organization for Economic Cooperation and
Development, who has frequentlycriticized the euro zone's crisis strategy,also
called for support from the ECB and other existinginstitutions, short of a full
bailout. "Why go into dramatic alternatives simply because you're
underutilizing the ones you already have?" he said in an interview with
The Wall Street Journal.
Officials
and analysts said Ms. Merkel is coming under more direct pressure at top-level
meetings as the crisis gets worse and since the departure of former French
President Nicolas Sarkozy, who had helped keep proposals strongly opposed by Berlin off the table at
summits.
However,
Mr. Hollande—whom Ms. Merkel met with Wednesday night—and Messrs. Rajoy and
Monti clearly want a more wide-ranging discussion that Ms. Merkel will have to
counter personally.
"The
danger is that the Germans at some point get into a corner and say 'no,' and
they [the leaders] don't come out with a compromise," says Janis
Emmanouilidis, senior policy analyst at the European Policy Centre in Brussels.
For this summit, however, he still expects leaders to avoid a direct clash and
agree on some steps to address the crisis.
"There
are signs from the top level of the German government—the chancellery and the
finance ministry—that they are ready to go into the direction of some levels of
banking union," namely limited funding for winding down failing banks in
return for transferring oversight to a powerful supervisor, Mr. Emmanouilidis
said. But he said joint European guarantees for bank deposits, which many
analysts say are needed to restore confidence in debt-ridden countries, are
probably a long way off.
— David
Román and Jonathan House in Madrid , Matina
Stevis in Brussels and Gabriele Parussini in Paris contributed to this
article.
Write to
Stephen Fidler at stephen.fidler@wsj.com
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