BRUSSELS — "Never has Europe been in more danger," French President Nicolas Sarkozy warned shortly before he and other European Union leaders were to begin an emergency summit in the Belgian capital with a dinner Thursday evening, ahead of Friday's formal meeting to try to rescue the euro and save the continent from looming financial disaster.
Raising the political rhetoric to ever greater heights, Sarkozy hinted at the possible disintegration of the European Union unless a solution were found.
"Never has the risk of an explosion of Europe been so great," the French leader said in a speech in Marseille, France, to the European People's Party, which is made up of 74 European parties.
"The diagnosis is that the euro, which should inspire confidence, is not inspiring confidence. If we don't get an agreement on Friday, we won't get a second chance."
Still, the fault lines that could scupper a decisive last-minute deal on Europe's sovereign debt crisis were apparent in a speech given moments later by German Chancellor Angela Merkel, who sat next to Sarkozy at the meeting in Marseille.
"It will take years for us to get through this," the chancellor said, ignoring persistent demands from some EU leaders who have been clamouring for German help while resisting her demand that they surrender national sovereignty over the size of their budgets and other fiscal policies. "Nobody believes words any more because we have not always lived up to those words."
However, Merkel said Thursday that she remained confident that the EU would find a way to step back from what one German magazine has called "the abyss."
Germany's enormous economic clout has effectively given Merkel a veto over anything the EU might decide to do to shore up its common currency and calm the fears of investors and banks that have been starving the continent of fresh money.
Countries such as Spain, Portugal and Ireland are barely afloat financially. Almost every eurozone country is facing a drop in its credit rating as the contagion has spread from Greece to Italy. It is now haunting countries with much more responsible financial records, such as Finland, Austria and the Netherlands.
The continent's economic situation has been unravelling so quickly that the European Central Bank did not even wait for the summit in Brussels to begin before lowering its lending rate Thursday to one per cent from 1.25 per cent — to avert a recession and to try help the weaker eurozone economies find easier terms for credit. It has also relaxed some of the terms for credit by extending borrowing over several years and loosening the rules regarding collateral.
However, Mario Draghi, the central bank's new president, later said the bank could not directly help European governments because of its own rules and denied that the bank would be buying billions of dollars in European bonds that come due next year — a move akin to indirectly buying debt from EU countries. These are policies that Merkel strongly agrees with.
Merkel favours strict universal monetary policies across the eurozone and wants to make this binding by tearing up old treaties and replacing them with new ones that will severely limit any country's ability to control its own economic levers. Essentially, what the chancellor is after is a fiscal union with one set of rules for national budgets, rather than every country setting its own.
A six-page draft agreement handed to the 27 leaders as they began their two-day summit called for a new "fiscal compact," Reuters reported Thursday. It called for much tougher enforcement of budget rules in the eurozone and the establishment of a permanent rescue fund. But as soon as the draft text leaked, the news agency reported a senior German official rejected key measures including allowing the proposed rescue fund to act like a bank in order to access funds from the European Central Bank.
While European banks feasted on the new credit available to them Thursday, investors revealed their doubts about whether the ECB measures went far enough and continuing anxiety over whether the European Union leaders have the mettle to emphatically deal with the worsening situation. Those reservations driving international stock markets and the euro sharply lower ahead of the crisis summit.
European media have reported that those at the summit are vowing not to leave until a deal is reached, raising the possibility that their urgent discussions may continue through the weekend.
The last emergency summit 10 weeks ago failed to reach agreement on what to do.
Read more: http://www.canada.com/business/will+take+years+resolve+eurozone+debt+crisis+Merkel/5831422/story.html#ixzz1g2rHvMq9
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