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June 30, 2012

Euro leaders reach deal to bolster confidence

The agreement is a victory for debt-saddled Spain and Italy, and key points will kick in within 10 days.

The Associated Press

BRUSSELS – After 18 disappointing summits since the start of the debt crisis, Europe's leaders appeared Friday to have finally come up with quick fixes and long-term plans that show they are serious about restoring confidence in their currency union.

Global markets sighed with relief, debt-saddled Italy and Spain appeared victorious and German Chancellor Angela Merkel faced potential criticism at home for conceding to pressure for an immediate deal.

Leaders of 17 countries that use the euro agreed to:

• Allow two European bailout funds to pump money directly into troubled European banks, rather than make loans to governments to bail out the banks. The move rescues banks without putting strapped countries deeper in debt.

• Use bailout money "in a flexible and efficient manner to stabilize" European government bond markets.

• Let countries that have made economic reforms as required by EU authorities tap the European rescue funds without submitting to stringent bailout programs.

• Tie their budgets, currency and governments ever tighter in a vast new economic union down the line.

European Council President Herman Van Rompuy called it a "breakthrough." Global stock markets and the euro rallied.

Concerns remain. Most of the measures approved in the Brussels summit will take months to come into force. The $630 billion firepower of the permanent bailout fund may not be enough. And given how shaky Spain's and Italy's finances are, and how jittery markets are, new roadblocks could send the continent back into crisis.

But some key points will kick in within 10 days: On July 9, eurozone countries will agree to give Spanish banks rescue loans and also allow the current, temporary European bailout fund to directly purchase Spanish government bonds.

The decision is a victory for Spain and Italy, whose borrowing costs have risen to near unsustainable levels despite their efforts to cut government spending and reform their labor markets.

Merkel is likely to face a grilling from a skeptical German Parliament later. Heading into the summit, Merkel had stuck to her line that any financial help from Europe's bailout fund must come with tough conditions, so a separate decision allowing countries that have reformed their economies easier access to bailouts, without such stringent conditions, was widely seen as a defeat by the German press.

Merkel insisted the funds still would only be released when it was clear that countries were undertaking serious reforms.

"We remain completely within our approach so far: help, trade-off, conditionality and control, and so I think we have done something important, but we have remained true to our philosophy of no help without a trade-off," Merkel said.

Van Rompuy dismissed talk that Merkel had lost in the negotiations. "It was a tough negotiation," he said. "And you can't summarize this in winners and losers."

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