EU executive wants 2-speed integration

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Associated Press

Posted on November 28, 2012 at 11:04 AM

Updated Wednesday, Nov 28 at 12:06 PM

BRUSSELS (AP) — The European Union's executive said Wednesday it wants to allow the 17 member states that use the euro currency to move faster toward economic integration than the broader 27-nation EU.

EU Commission President Jose Manuel Barroso claimed that more integration and centralization of decision-making in Brussels, at the expense of national capitals' sovereign power, is necessary to overcome the economic crisis. He said eurozone countries should be allowed to pool their debt to protect financially weaker member states.

But Barroso's call, which sought to set the tone for the EU's traditional year-end summit of government leaders on Dec. 12-13, is likely to be resisted by some in the bloc.

Experts say a two-speed EU, in which a core group integrates at a faster pace, threatens to isolate member states that are not part of the euro. The issue of a two-speed EU has become a sensitive topic in recent years as eurozone countries strengthened their ties to fight their financial crisis.

Some eurozone countries, meanwhile, are wary of giving up too much power to Brussels. Germany, the eurozone's largest economy, rejects the pooling of debt.

Barroso argued that the 17 euro nations should be allowed to "integrate further and quicker" to give them the ability to better anticipate market concerns about the currency bloc's finances.

At the heart of the eurozone's debt crisis has been the fear that individual member states can go bankrupt. Investors have been spooked by EU leaders' inability to make quick decisions on pressing matters — like giving rescue loans to a cash-strapped country like Greece.

Critics also say the leaders' summits, which often last through the night, rarely achieve more than temporary fixes for the most pressing problems.

After three years, financial markets have finally calmed this year as investors have been convinced that EU leaders will do what it takes to keep the currency zone together. One of the biggest factors to steady markets has been the European Central Bank's commitment in September to help lower countries' borrowing rates. That eased the lingering concern that an individual country might be frozen out of bond markets.

But the current calm in financial markets could EU leaders to sleep, Barroso fears.

"Yes, I am concerned that now not all capitals have the sense of urgency that they had some months ago," he said.

Many countries have economic reforms to complete. EU nations, meanwhile, have to finish working on a banking union and creating closer fiscal ties, including checks on each others' budgets.

Barroso said he wants the EU countries to go for "a truly coordinated economy and monetary union in the euro area."

He said some measures could be taken in the short term but also mentioned several that would need changes in the EU treaty and could take years to come into effect.

In the long term, Barroso's blueprint called for an "autonomous euro area budget" to help stabilize the monetary policies across the eurozone. The Commission said it "could allow a common issuance of public debt," something German Chancellor Angela Merkel has steadfastly opposed.

German Foreign Minister Guido Westerwelle said proposals for pooling debt "go in the wrong direction."

"Pooled debt liability, under whatever label, is not acceptable for the German government," Westerwelle said in a statement, arguing that it would overburden some countries while undercutting others' readiness to conduct reforms.

Separately, the Commission also adopted what it calls it's the "annual growth survey," a guide for EU countries on the policies they need to pursue to get their economies growing — something they badly need in their effort to reduce debt.

The recommendations echoed those made a year earlier. They focused on getting national budgets into balance, restoring a normal flow of credit to businesses and households, tackling unemployment and promoting competitiveness.

"It is crucial to stick to our strategy of growth-friendly fiscal consolidation, economic reforms and targeted investments," Barroso said. "This is the only way to restore confidence and create lasting growth."

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Don Melvin in Brussels and Geir Moulson in Berlin contributed to this article.

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