BRUSSELS/MADRID/NICOSIA — Top European officials have called for countries that use the euro to grant a supranational authority the power to demand changes to their national budgets, as part of a grand vision to save the currency and strengthen the union.
The plan published Tuesday on the European Council website was drawn up by the “gang of four” European presidents: Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, Eurogroup President Jean-Claude Juncker and European Central Bank President Mario Draghi.
The four officials’ proposal appears aimed at encouraging Germany to accept closer fiscal integration, such as jointly issued eurobonds, which spread debt risk across the eurozone. Germany opposes a quick adoption of eurobonds because it would be exposed to more potential costs.
A central control over those finance policies may reduce Germany’s fears.
“Greater pooling of decision-making on budgets … (and) effective mechanisms to prevent and correct unsustainable fiscal policies in each member state are essential,” they wrote in the report to be debated at a summit of EU leaders Thursday and Friday.
The plan proposes a “medium-term” move toward eurobonds, as well as creating a banking union with a single authority that would insure banking deposits and have the power to shut or recapitalize banks directly, with help from Europe’s permanent bailout fund.
Germany’s deputy foreign minister quickly dismissed the eurobonds idea.
“By beginning with pooling of debt, we’re heading toward a dead end,” Michael Link said in Luxembourg.
Cyprus the 5th Eurozone State to Seek Bailout
Cyprus on Monday became the fifth eurozone country to request financial aid from its partners in the troubled European currency union as it struggles to shore up banks that took heavy losses on Greek debt.
The island nation’s government said in a terse statement that it required assistance following “negative spillover effects through its financial sector, due to its large exposure in the Greek economy.”
Government spokesman Stefanos Stefanou wouldn’t say how much Cyprus would ask for from the European bailout fund.
Analysts estimate the sum would likely be around 5 billion euros (US$ 6.2 billion) but could go as high as 10 billion euros (US$ 12.5 billion). That’s a fraction of the bailouts given to the other EU countries.
28 Spain Banks’ Ratings Cut
Spain suffered a fresh blow as 28 of its banks were hit with credit downgrades.
The Moody’s decision to slash the Spanish lenders’ ratings came just hours after Madrid made a formal request for cash to bail out its troubled banking sector. Eurozone finance ministers have offered up to 100 billion euros (US$ 125 billion) for the country’s lenders.
The agency said it slashed the ratings because they faced rising losses from commercial real estate loans, adding that Madrid’s own lowered credit grade was a contributory factor.
Moody’s said, however, that it “views positively the broad-based support measures being introduced by the Spanish government to support the Spanish banking system as a whole”.
Consultants hired by Madrid have estimated that the banks — hobbled by huge, reckless loans that turned sour after a property bubble imploded in 2008 — need up to 62 billion euros in capital.