The leaders of the euro currency bloc's four biggest economies have, for the first time, agreed to support new spending to try to boost the region's stagnant economic fortunes.
After meeting in Rome, German Chancellor Angela Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy agreed Friday to push for approval of a $163 billion package to promote economic growth when a European summit is held next week in Brussels.
Until now, Ms. Merkel had been single-minded in advocating austerity spending cuts as the path to ending the currency union's debt crisis. But she has been under increasing pressure from the French president, U.S. President Barack Obama and others to also promote economic advances, to calm world financial markets and limit the impact of the eurozone crisis on the global economy.
The German leader described the new growth package as “an important signal.” She said the lesson of the debt crisis is the need for a more unified Europe.
“We will all work for this goal (of a stronger political union) and we'll discuss it in our countries. The crisis of the euro means more Europe, not less Europe.”
Mr. Monti declared that the four leaders all staunchly support the currency.
“The euro is here to stay, and that we all mean it.”
There were no immediate details on how the money might be spent, but the eurozone is faced with a jobless rate of more than 10 percent, the highest in the 13-year history of the currency union. The $163 billion amounts to one percent of the eurozone's overall economy.
Despite the agreement among the four leaders on a growth package, contentious issues remain, such as whether to sell bonds backed by the entire eurozone, which economic powerhouse Germany opposes.
The eurozone also faces other financial issues. Debt-ridden Greece is seeking relief on the terms of its bailout, while Italy and Spain are facing increased borrowing costs.
The high-level Rome talks occurred hours after Moody's Investors Service cut the credit ratings for 15 of the world's largest banks. One analyst, Chris Wheeler of Mediabanca, said the economic turmoil in the eurozone and the banks' financial condition led to the downgrade.
“The two reasons for this universal banking groups being downgraded was obviously the weak capital markets and also, of course, exposure to the eurozone in general.''
Despite the cut in the banks' credit standing, their stocks mostly jumped on European and U.S. markets. Analysts say that was because Moody's had warned months ago that it might downgrade the firms, and the market had already taken that possibility into account, and some of the credit downgrades were not as severe as expected.
Trader Will Hedden of IG Index noted that one of the institutions, the Royal Bank of Scotland, said it was more financially stable than in the past, a claim echoed by other banks as well.
“We've already seen RBS coming out and saying, well, they don't agree with this, this is backward-looking and not forward-looking and we're in a much better position than we were in the past.”
