EU leaders attempt to prevent new crises

09:39, June 18, 2010      

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Europe cracked its whip on excessive state borrowing Thursday, laying foundations for cross-border economic government with a fearful eye on gathering dark clouds over Spain.

  Leaders used a European Union summit to widen their focus from public overspends and also target dangerously high private sector debt, a bigger problem with Spain's banks than it ever was with bailed-out Greece.

  As Madrid auctions off a major tranche of its sovereign debt, with the interest it has to pay to raise funds rising again, diplomats said that agreement had been reached in advance to toughen sanctions for those who blow their budgets.

  Crucially, the creation of new penalties, including the withdrawal of voting rights in EU decision-making, will apply only to those countries that share the euro currency.

  That position will delight Britain, whose Prime Minister David Cameron arrived for his first summit vowing to defend vigorously a series of "red lines."

  Cameron said, "We should be focusing on the issues of substance and not of institutional reform."

  He was not alone in resisting anything that might require painful and uncertain treaty negotiations.

  "We already have the solutions and the measures needed," said Swedish Prime Minister Fredrik Reinfeldt, pointing out that existing sanctions have never been used.

  Luxembourg Prime Minister Jean- Claude Juncker, who is also head of the Eurogroup of finance ministers, told the Luxembourg Wort daily that treaty change "is not a possibility in the short or medium term."

  European governments are also taking big steps toward revealing if banks can withstand shocks such as those that hit the global economy two years ago, and now in reaction to concern about finances in Spain.

  Germany joined major European partners Thursday in backing the publication of bank "stress tests."

  Berlin, which had been skeptical about revealing details of tests on the financial health of its banks, dropped its objections after France and Spain came out in favor of a move the Obama administration has pressed Europe to take.

  "Germany is positive on the idea of publishing the results of EU stress tests," said Finance Ministry spokesman Michael Offer. "We see that markets are unsettled and that confidence among banks has taken a hit."

  Earlier, French Economy Minister Christine Lagarde had thrown her weight behind rapid publication of stress tests, saying French banks had strong balance sheets and nothing to hide.

Source: Global Times


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