European leaders seek roadmap for future growth

BRUSSELS  — Economic growth was the mantra among European leaders as they began a crucial summit yesterday, though expectations of a breakthrough on the explosive issue of pooling government debt appeared to have fallen by the wayside. European Commissioner for Economic Affairs Olli Rehn said he expected leaders would agree on new growth measures, as well as on action to reduce borrowing rates for Spain and Italy, which are approaching unmanageable levels. “I expect that there will be a decision on a further step toward rebuilding the economic and monetary union,” Rehn said shortly before the summit began. “We also need concrete decisions on a short-term stabilisation of financial markets, especially sovereign debt markets.” But German Chancellor Angela Merkel has rejected the most obvious way of reducing borrowing costs for the southern European countries: by issuing “eurobonds,” or debt backed by all countries. She has reportedly said it would not happen in her lifetime.

As the biggest economy in the eurozone, Germany would have to shoulder the brunt of the debt, and Merkel has been reluctant to expose German taxpayers. She is also concerned it would ease the pressure on countries like Greece and Spain to reform their economies. “I think we should stop talking about eurobonds now because, with the German government’s ‘no,’ with this definitive ‘no’ from Mrs Merkel, eurobonds are now a non-issue,” the president of the European Parliament, Martin Schulz, said yesterday. While pressure on Merkel has been building, she is not alone in her opposition to Eurobonds. Austria, Finland and the Netherlands are also opposed, among Eurozone countries. Dutch Prime Minister Mark Rutte, spoke forcefully against the idea. “There are already instruments available in Europe for countries that say ‘we can’t make it on our own,’” he said. “I see no reason whatsoever to start thinking up all kinds of new instruments.” He said that the only way for Spain and Italy out of this crisis is to keep cutting costs and reforming their economies, though he signalled the Netherlands is willing to let them tap one of Europe’s bailout funds if they request aid. Investors are looking for signs of a clear strategy to deal with the debt crisis. They are not hopeful, though, and sold off stocks across Europe yesterday ahead of the summit. “The good news is that this time around expectations are very low; the bad news is that the main players seem to be diametrically opposed when it comes to a strategy for ending the crisis,” said Gary Jenkins, managing director of Swordfish Research, a London-based consulting firm.

The French plan to stimulate growth, and thereby increase government tax revenues, is relatively modest. Although worth €130 billion, it is expected to consist mostly of European funds already earmarked for development. Far more urgent is finding a way to keep the cost of borrowing money sustainable for weaker EU countries. The leaders of Italy, France and Spain have been pressing Germany to agree to share debts before markets push the 17-nation eurozone closer to collapse. The EU’s top officials and the International Monetary Fund have argued the same. Italy’s Prime Minister Mario Monti, at risk of losing his job because of voter frustration with budget cutbacks, said that Italians have made great sacrifices and gotten their country’s deficit under control but the yields on Italian debt have soared to one-year highs anyway. Monti warned that if Italians become discouraged, they could turn against the idea of European integration, which the country has so far mostly embraced. That, he said, “would be a disaster for