Agreed Euro pact brings closer EU comprehensive crisis solution

12:50, March 12, 2011      

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Leaders of the 17-nation euro zone have agreed on a "Pact for the Euro" aimed at enhancing the bloc's competitiveness and sustainability, seen as a key element of the envisaged comprehensive package to tackle the yearlong debt crisis.

"The Euro pact's objectives are sustainable public finances, a competitive economy and sound financial systems," President of the European Council Herman Van Rompuy said at a press conference held in the early hours of Saturday morning.

In a run-up to the decisive summit of all 27 European Union (EU) states on March 24-25 when leaders were to agree on a comprehensive package, euro zone leaders had eight-hour-long tough negotiations at an informal summit that started on Friday afternoon.

"An invisible loss of competitiveness was a driver of the public debt crisis in the euro zone," the president said.

The competitiveness pact was initially proposed by Germany with specific requirements on economic and social reforms, backed by France but still opposed by many member states. It was not surprising that the new pact only came up with objectives instead of measures.

Euro zone leaders would announce their own measures to be put in place nationally under the pact at the upcoming EU-wide summit, according to Van Rompuy, who added that the peer pressure, apart from market and institutional pressures, would give the commitments under the pact a politically binding force.

"It is a good pact in terms of competitiveness and convergence for the euro area," said European Commission President Jose Manuel Barroso said at the same press conference, adding that the pact was also open to non-euro zone area.

Euro zone leaders also agreed in principle on other major elements of the comprehensive package, including the expansion of the bloc's rescue fund to help member states with debt problems.

The bloc would make sure the full amount of the 440-billion-euro (one euro equals some 1.38 U.S. dollars) temporary bailout fund and the 500-billion-euro permanent mechanism available, said Van Rompuy. The effective lending capacity of the current 440 billion euro only amounts to 250 billion euro due to the need to retain its triple-A credit rating.

According to the conclusions of Friday's informal summit, the fund will also be allowed to buy the bonds of governments in financial difficulties on the open market only if the respective country is locked into a national bailout program based on strict condition, in other words, notable expansion in the fund's powers.

Euro zone leaders also agreed to extend the maturity of the loans to Greece from three and a half years to seven and a half years, as well as lower the interest rates with 1 percent, Van Rompuy said.

However, Ireland failed to get the same treatment as Greece from the leaders and Van Rompuy said that was because it had not fulfilled the conditions.

Diplomats said it was due to the refusal of the newly-elected Irish Prime Minister Enda Kenny to raise its low corporate tax rate.

Further negotiations were expected to continue until the next summit when the Euro pact and the full package would be formally adopted, according to Van Rompuy, while some experts warned that the leaders should not be complacent.

"Markets have high expectations and the crisis will re-emerge if the EU is not able to deliver sound results by the end of March," said Janis Emmanouilidis, a senior policy analyst with the Brussels-based think tank European Policy Center.

Van Rompuy seemed quite upbeat about the next summit. "Everything will come together at the European Council at end of March. This should allow us to finally turn the corner," he said.

Source: Xinhua

 
 
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