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A Faltering Solidarity?

EU Resists Eastern Bailout Pleas

There will be no EU regional bailout for struggling Eastern European economies, leaders decided at a Sunday summit. But neither will the 27-member-bloc succumb to protectionist instincts. Still, fears persist that Western Europe is putting local economic interests ahead of EU unity.

As European Union member states struggle to deal with the impact of the global economic crisis, cracks in the 27-member bloc are beginning to appear. Increasingly that division seems to be between the old Western European nations and the former communist states to the east.

On Sunday the leaders of the EU countries gathered in Brussels for an emergency meeting to address ways to tackle the crisis as Eastern European states voiced fears that moves towards protectionism in the bloc's richer countries would leave poorer countries to struggle on their own.

The crisis has hit Eastern and Central European countries particularly hard because many of their economies are highly reliant on credit from Western sources, and like elsewhere that credit has all but dried up. Hungary and the Baltic States have been particularly badly affected by the downturn and ahead of Sunday's summit the Hungarian Prime Minister Ferenc Gyurcsany had called for a massive bailout for the Eastern European region, recommending a fund of up to €190 billion euros ($240 billion.) He warned that the EU should not allow the recession to cause new divisions in Europe. "We should not allow a new 'Iron Curtain' to ... divide Europe into two parts."

The call, though, fell on deaf ears in Brussels with German Chancellor Angela Merkel leading the rejection of any regional bailout. "I see a very different situation here," she said on her way into the meeting. "You cannot compare Slovenia or Slovakia with Hungary."

There are indeed huge disparities in how the crisis is affecting European countries. While Budapest has been forced to ask for a loan from the International Monetary Fund to prevent a complete collapse of the Hungarian economy, countries like Poland and Slovakia are on a much sounder footing and even expect to see modest growth this year. In contrast, older EU states like Greece, Spain and Ireland are seeing their economies contract considerably. Meanwhile, Germany, the biggest contributor to the EU coffers, is also in recession and Chancellor Merkel is unwillingly to throw an expensive lifeline to all of Eastern Europe in a difficult election year.

Fighting Protectionism

Furthermore there is far from a united front even from Eastern European leaders on the issue. After Sunday's meeting, Czech Prime Minister Mirek Topolanek, whose country currently holds the rotating EU presidency, said "the idea of dividing up into old member state countries, eurozone countries, non-eurozone countries, north against south, or east against west, that is clearly an approach we rejected." He added that the EU was not going to leave any country "in the lurch."

European Commission President Jose Manuel Barroso said that it had been the Eastern European countries themselves that rejected a "program just for them," adding that there was a great diversity of situations in the region. He pointed out that some Eastern European states were already getting billions in emergency rescue funds from the EU, the World Bank and other financial instutitions.

Still, Eastern Europe is concerned that economically powerful Western European states are more interested in protecting their own economies than working together to tackle the crisis on an EU-wide basis. In particular moves by French President Nicolas Sarkozy to prop up the domestic auto industry in France have greatly irritated leaders in the east. Paris had originally planned to loan €7 billion to French carmakers Renault and Peugeot Citroen PSA only on the condition that production would not be shifted abroad. Many interpreted that to mean that plants owned by the companies in Eastern Europe were endangered. On Sunday, though, the EU approved the French auto bailout only after Paris ensured Brussels that such protectionists clauses had been removed from the agreement.

It is not clear if this will do much to allay fears that Eastern European plants would be the first to fall victim to any restructuring at the French firms. Polish Prime Minister Donald Tusk told journalists "always we must resist the temptations of protectionism," after chairing a pre-summit meeting of nine leaders from Eastern European countries. "All participants of the meeting agree that in the time of crisis, maintaining solidarity in Europe is of paramount importance," he said.

The point was reiterated by British Prime Minister Gordon Brown. "Protectionism will mean less trade, less business and less jobs in the long run," he said after the summit, adding that the battle against protectionism should be at the heart of the global response to tackling the economic crisis. Brown pledged to discuss the idea of a "global grand bargain" to save the world economy with US President Barack Obama during a trip to Washington which starts Monday.

Another bone of contention in the bloc are the requirements necessary to join Europe's common currency, the euro. Currently used by 16 European countires, the euro has proved a stable anchor in the turbulent currency markets, and many of the euro zone countries are loathe to allow weaker economies to join prematurely. While Hungary and the Baltic states called on the EU to make it easier to join the currency ahead of Sunday's meeting, Poland is not in favor of changing the current criteria. Polish Prime Minister Tusk, though, said he thought that shortening the current two years that countries are required to stay in the pre-euro exchange rate mechanism would be a good idea.

'Unproductive Political Showpiece'

Yet most Western European countries, once again led by Merkel, firmly rejected any changes. Dutch Prime Minister Jan Peter Balkende said that if a nation wants to join "it must meet the minimum economic criteria." While Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro zone countries, said "I don't think we can change the accession criteria to the euro overnight. This is not feasible."

In the end, despite all the talk of unity and solidarity, the EU leaders did little to overcome the impression that the crisis is causing deep divisions within the union. The leaders now have just over two weeks to come up with more concrete solutions ahead of their official summit on March 19 when they are hoping to seal a unified EU line ahead of the G-20 meeting in London on April 2.

Eurochambres, a business association that represents 19 million companies across the EU, was far from impressed with the performance in Brussels. "This summit was yet another rather unproductive political showpiece bringing no concrete solutions to the dramatic economic situation," said Arnaldo Abruzzini, head of Eurochambres. He added that there had been a "worrying lack of economic coordination among member states."

smd -- with wire reports