Mixed messages on crisis response undermine EU rescue planning

By Sophie Laubie, AFP

BRUSSELS — How to shape a permanent eurozone rescue fund post-2013? Is the future of the euro at stake? Europe’s monetary union seems unable to agree on its financial crisis response even as markets put the squeeze on Ireland, Portugal and others. With Dublin heading towards finalizing the terms of an international bailout and other weak links in the eurozone chain trembling at sharply rising bond yields, the European Union has been sending out mixed messages. Germany, Europe’s de facto paymaster, has been criticized for “alarmist” comments by its finance minister, Wolfgang Schaeuble, and Chancellor Angela Merkel. The former said Tuesday that the future of the euro currency was “at stake” in the Irish crisis, which the latter described as an “extraordinarily serious situation.” EU president Herman Van Rompuy also said last week that the bloc was locked in a “survival crisis” but economic and monetary affairs commissioner Olli Rehn warned the next day that there was a need to “resist alarmism” about the debt strains in the eurozone. Merkel appeared to row back on Thursday, saying “I am more confident than in the spring that the eurozone will make it out of the current turbulence,” with fresh telephone talks with French President Nicolas Sarkozy slated for later in the day. Diplomatic sources say Germany has to sell hard to voters its aid for Ireland, six months after the Greek bailout’s difficult passage through its parliament and an initial constitutional court opinion, hence the dramatization. The contradictory stances reflect fundamental divergences on the key issue at stake: whether and how to make private investors share the burden of support for troubled governments under a permanent EU crisis fund due to come on line in 2013. EU leaders agreed at an October summit to turn a 500-billion-euro post-Greece emergency fund, topped up with half as much again from the International Monetary Fund, into a lasting backstop. Its precise shape will only begin to emerge at the last EU summit of the year on December 16 and 17, but Berlin is pushing hard for future bailout bills to be shared by taxpayers and banks or other investors that buy government debt. The German government has set down its ideas in writing in a document seen by AFP, whereby future eurozone bond issues would have special new clauses attached allowing for repayment restructuring, a lowering of yields or interest rates and even reduced creditor returns in certain circumstances. This drive comes amid the return of the bankers’ bailout, something the EU’s financial services commissioner, Frenchman Michel Barnier, had vowed would never happen again under a series of plans to regulate financial markets across the bloc.

Ireland was driven to seek an international rescue after having bailed out its banks to the tune 50 billion euros earlier this year, but which now need even more money.