Billions in Support Merkel, Monti and Co. Agree to European Growth Pact
Agreeing that austerity alone will not be enough to pull the euro zone out of its deep crisis, the leaders of Germany, France, Spain and Italy agreed on Friday to the blueprint for a growth pact for Europe. With a value of 130 billion euros, the leaders hope to impress markets with the pact at next week's EU summit.
The countries with the four-largest euro-zone economies agreed on Friday to an economic growth program with a total value of 130 billion ($163 billion). The sum represents 1 percent of the European Union's gross domestic product, Italian Prime Minister Mario Monti said in Rome after a meeting with German Chancellor Angela Merkel, French President François Hollande and Spanish Prime Minister Mariano Rajoy.
Germany, France, Italy and Spain all agreed that growth measures undertaken so far have not been enough to pull Europe out of a debt crisis that is threatening to unravel the continent's common currency, the euro. They also agreed that budget discipline alone will not be enough to fuel economic growth and create jobs for the mass of unemployed Europeans.
Chancellor Merkel said the plan was the "message we need." She also admonished Europe to venture even closer political integration. The German leader said the four countries would support the introduction of the financial transaction tax that Germany and some others are demanding in order to help recoup part of the costs of the financial crisis from the markets. In Berlin, Merkel's government cut a deal on Thursday with the opposition requiring the government to push for the tax in exchange for support from the center-left Social Democrats and the Greens for ratification of the permanent euro rescue fund, the European Stability Mechanism (ESM), and the EU fiscal pact. Merkel said that the financial markets have not yet sufficiently contributed to the costs of managing the crisis.
Monti: Meeting Paves Way for Effective EU Summit
For weeks now, possible efforts have been discussed across the EU for measures to drive economic growth. On Thursday, Merkel's center-right government agreed to a "pact for sustainable growth and employment." Under the plan, unspent money from existing funds will be used to foster growth. There is also general agreement over calls to increase the capital of the European Investment Bank, the EU's financing institution, by 10 billion in order to give it greater lending capacity.
The plans also envision so-called project bonds being financed through the EU's budget. These bonds would be issued for private-sector infrastructure projects, but would be at least partially backed by money from the EU budget. The German government is expected to push to increase the amount available in an already-agreed-to pilot phase to 1 billion.
Monti had invited the three leaders to Rome ahead of next week's EU summit in Brussels. The Italian leader said the countries made a positive contribution on Friday in preparing for an effective summit in the EU capital next week, where the proposals will be considered by all member states.
For his part, French President Hollande expects important changes in course of managing the euro and debt crisis to emerge at the summit. "The European Council (the powerful EU body that represents the member states) must make progress in creating confidence in the euro zone and Europe," Hollande said after the summit. He added that Euro bonds, a means of collectivizing debt across the euro zone that Merkel has thus far rejected, would be a useful instrument, but that further work is required before they can move forward.
Merkel Maintains Opposition to Direct Aid for Banks
Meanwhile, Merkel refused calls for aid to be provided direct from the European bailout funds to banks. The treaties governing the current European Financial Stability Facility (EFSF) and the yet-to-be-implemented permanent European Stability Mechanism (ESM) both stipulate that it is the countries who are partners and not banks, the German chancellor said.
The fund was created with these conditions, Merkel said, adding, in a reference to the Spanish banking crisis, that she did not want to change anything in that respect. "It's not that I don't want to, but the treaties are made that way," she said.
Liability and control belong together, Merkel said, arguing that, in the interests of German taxpayers, the Spanish government had to guarantee that things would ultimately get sorted out. The government could also impose conditions on the banks, she said.
Following a meeting on Thursday of euro-zone finance ministers, Christine Lagarde, the head of the International Monetary Fund (IMF), again called for a "direct link" between the euro rescue fund and the banks, without having to go through national governments. It's a proposal that has also been backed by the European Commission, the EU's executive.