Wednesday 6 June 2012
Last Update 7 June 2012 1:42 am
PARIS: US President Barack Obama and British Prime Minister David Cameron have called on Europe to come up with an “immediate plan” to resolve the euro zone crisis, but Germany turned down a plea for swift help from Spain.
The European Central Bank also refused to toss recession-hit euro zone economies an easy-money boost, keeping interest rates steady at 1.0 percent.
European leaders are under intense pressure to take bold action to try to resolve the two year old crisis at a June 28-29 summit.
Obama and Cameron kept up that pressure, agreeing in a late-night telephone call “on the need for an immediate plan to tackle the crisis and to restore market confidence, as well as a longer-term strategy to secure a strong single currency,” according to a Downing Street spokeswoman.
Teetering Spanish banks are now the urgent focus with Madrid asking for deeper eurozone integration so European funds can be directly pumped into lenders so it can avoid the Irish trap where saving the banks dragged the country into a bailout.
Spanish Finance Minister Luis De Guindos signalled Madrid will have to move quick, making a decision within the next two weeks on how to help its lenders who are struggling to raise 80 billion euros ($ 100 billion) in capital to shore up their books.
Europe “must help nations in difficulty,” Spanish Prime Minister Mariano Rajoy told lawmakers on Tuesday as he called for a laundry list of EU reforms viewed with suspicion by Germany including deposit guarantees, a banking union, and eurobonds.
The proposal gaining the most traction outside Germany is to integrate the eurozone’s national banking systems, which would sever the link between banks and sovereign finances.
But powerhouse Germany resisted the pleas, saying whatever help the EU can provide to an increasingly desperate looking Madrid should come from tools, and according to rules, that exist already.
Government spokesman Steffan Sibert said the reforms asked for by Rajoy required long-term changes beforehand, while reiterating that only governments can apply for cash from the European bailout funds.
“These instruments must be applied for by governments ... whether a government wishes to apply is purely a matter for the government,” Seibert said.
A leading member of German Chancellor Angela Merkel’s coalition sarcastically called the banking union idea “a new, admittedly creative, way to tap German solvency.”
“Every eurozone country has to take responsibility for its own banks,” said Christian Lindner, one of the Free Democrats party’s rising stars.
But Spain has so far refused to seek financial assistance from the European Union that would come to the government with tough strings and a politically humiliating austerity program attached to it.
But some kind of rescue for Spain was beginning to emerge, and French Finance Minister Pierre Moscovici said EU partners are ready to “mobilize very rapidly” to come to Spain’s financial assistance.
According to the German daily Sueddeutsche Zeitung, a compromise under discussion could see European Union aid paid to the Spanish state-backed Fund for Orderly Bank Restructuring (FROB).
The Spanish government in turn would push through mergers or closures of weakened Spanish banks, the German newspaper said.
The report said that would preserve Madrid’s sovereignty and uphold the German position that EU funds should be paid only to public institutions.
But a Madrid newspaper reported that the European Union will demand as part of any bailout that Spanish banks set up a new, multi-billion-euro cushion against home mortgage failures, which they haven’t been required to do so far despite daily headlines of home evictions and unemployment soaring to a record at 24.4 percent in the first quarter of 2012.
ECB chief Mario Draghi sought to calm fears, saying the eurozone debt crisis is “far” from as bad as the market meltdown in the wake of the 2008 collapse of US investment bank Lehman Brothers
“We are rightly alarmed but I would say that we are still far away from that situation,” he said.
Analysts had widely expected the ECB would hold off cutting interest rates until at least next month, when the outcome of the Greece’s second parliamentary elections in two months will be known.
Surveys have put in pole position in the June 17 vote the radical leftist Syriza party that has pledged to tear up the EU-IMF bailout accord, a move that would likely lead to Greece’s bankruptcy and leaving the euro.
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