European Leaders Start Two-Day Economic Summit in Brussels

Posted June 28th, 2012 at 12:20 pm (UTC-5)
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European leaders have started their 20th summit on the continent's unrelenting debt crisis, with new pressure to calm international financial markets wary about the fate of the euro currency and ease the financial burden for debt-ridden Spain and Italy.

Much of the focus at the start of the Brussels summit Thursday was on Germany, with the currency bloc's most robust economy. Some European leaders are advocating the sale of eurobonds, debt supported by the entire 17-nation eurozone, not just individual governments. But Berlin has opposed their adoption, fearing that its borrowing costs could jump even as those for weaker governments drop.

With financial markets worried about economic instability in the eurozone, borrowing costs for Spain and Italy have risen to near the level at which Greece, Ireland and Portugal were forced to secure international bailouts in the last two years.

German Chancellor Angela Merkel this week called eurobonds “economically wrong and counterproductive.” But finance minister Wolfgang Schaeuble signaled Germany may be shifting in its adamant opposition.

He told a U.S. business publication, The Wall Street Journal, that Germany could agree to some form of shared eurozone debt if it is convinced that the move toward central European control over the spending practices of the eurozone's individual governments is “irreversible and well-coordinated.” He said there would be no common bonds “without a common fiscal policy.”

French President Francois Hollande said he was looking for “very quick solutions” to support Italy and Spain, the eurozone's third and fourth biggest economies. The interest rate for Spanish debt edged closer to the 7 percent mark Thursday, a cost level deemed unsustainable over the long term, while Italy's topped the 6 percent mark.

Spanish Prime Minister Mariano Rajoy is warning that his government will not be able to sustain its high borrowing costs for much longer.

Ahead of the summit, EU economics chief Olli Rehn said he thinks the European leaders will adopt measures to calm financial markets and help Italy and Spain.

“I trust that we will have a possibility to take decisions in the European summit that will help to stabilize the financial markets in the short term, and help to reduce borrowing costs of countries like Italy and Spain. This is one element of our comprehensive crisis response that should be decided in the summit.”

European Council President Herman Van Rompuy said the continent's leaders need to act quickly.

“Reviving growth in our economies and creating jobs, especially for young people, requires immediate action. Restoring confidence in our currency calls for stability today and a credible perspective for the future.''

The summit could endorse a new $162 billion package to boost the eurozone's stagnant economy, which Ms. Merkel says she supports. The figure amounts to about 1 percent of the eurozone economy, but the effect of the spending is uncertain because most of the money had already been earmarked for development projects.