EU leaders clash on fiscal powers as Greeks protest

Nikolia Apostolou and Sumi Somaskanda Special for USA TODAY

http://www.usatoday.com/story/news/world/2012/10/18/eu-debt-crisis-greece-protest/1641571/

European leaders meet to discuss fiscal unity amid disagreement over how to achieve it and protests over budget cuts in Greece.

5:17PM EDT October 18. 2012 - BERLIN — Tens of thousands of Greek protesters clashed in the streets Thursday as European leaders met in Brussels to consider German plans for tighter fiscal unity that would give the European Union power to veto budgets of debtor nations if they don't cut spending enough.

"We're protesting against the harsh inhumane austerity measures that are going to be voted on in parliament," said Ira Diamantidi, 51, a teacher in Athens. "We're living in complete terror."

The Greek government is currently in the process of negotiating a new $17.7 billion package of spending cuts and tax hikes — so-called austerity measures — to qualify for continued loans from their richer European neighbors and avoid bankruptcy.

PHOTOS: Violent protests in Greece

The cuts hit pensions and health care services, which is angering many public unions and ordinary Greeks, and they come as EU leaders are in Brussels to figure out how to tighten oversight of debtor nations.

A proposal unveiled by German Finance Minister Wolfgang Schaeuble

ahead of the conference would give the European Commission – the executive branch of the EU – power to oversee the budgets of individual countries.

All of the members of the eurozone, or the 17 nations that use the euro as currency, would have to agree to add such powers. There is a question about whether the non-eurozone members of the EU, such as Britain, would have to approve the change.

But the heads of some nations such as France have criticized what they see an attempt to force EU countries to surrender national sovereignty.

"It would involve countries handing over to an unelected appointed figures the right

to veto their budgets, so in terms of the implications for democratic accountability it's certainly very radical," said Simon Tilford, chief economist at the Center for European Reform in London.

Adding to the bickering at the summit, Denmark and Sweden joined forces Thursday to demand banks take more responsibility than required today for loans given to nations now mired in debt.

Both nations said it was unfair for taxpayers alone to provide cash bailouts to indebted governments to pay off bank loans that should never have been made. They said any new regulatory system should require banks to take greater losses.

European leaders reached agreement Thursday on creating a single supervisor

for banks in the countries that use the euro to be up and running sometime next

year. The deal represents a compromise between the Germans and French,

who had been tussling over how best shore up stricken banks — one of the main

causes of the Europe's financial crisis.

In some cases, like Ireland, failing banks have dragged the governments that tried to save them into bankruptcy. Some fear Spain faces the same fate.

France had been pushing to get all eurozone banks under the supervision of one European body by the end of this year. But Germany said it was wary of shelling out taxpayer money to banks and has put the brakes on the plan, by insisting that creating the supervisor should be done slowly.

In Athens, public transportation ground to a halt in Athens as 70,000 Greeks, many of whom walked off their jobs at schools, hospitals, airports and public transport, marched in the streets.

Under pressure from European leaders, the Greek government has already made significant cuts to public spending and raised taxes as unemployment has soared to more than 25% and the economy continues to contract. That is why many nations are complaining that Schaeuble's proposal, if adopted, would simply intensify the crisis for Europe's struggling economies.

"The German assumption is that countries are missing their fiscal target because they're not trying hard enough," said Tilford. "That sort of misses the underlying reason why governments are struggling to reduce their deficits, which is that tax revenue is falling – in some cases very sharply. Tightening or cutting public spending more when tax revenue is already falling because of weak demand is only going to make things worse."

Many are also wary of increasing Brussels' control over EU member states. In December, the United Kingdom opted out of plans for a fiscal pact that would bring European budgets in line and are not expected to react any differently this time around, economists say.

Carsten Brzeski, a senior economist at ING in Brussels, says that even the 17 eurozone member states are unlikely to agree to the proposal, at least at first, "because it really interferes with national sovereignty and there are countries like France (which) do not really like strong European institutions."

With Europeans continuing to struggle to find common ground on such key issues, analysts say Thursday's summit is unlikely to produce any concrete resolutions. But some believe that Schaeuble's drastic integration plans will need to be put in place sooner or later.

"The charm of the proposal is that it now clearly shows how radical the solution probably has to be," Brzeski said. "The typical crisis management approach is always piecemeal, which means that the general public usually loses sight of what's happening.

"But this is something people understand – it's something you can explain to voters."

Contributing: The Associated Press