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Euro rescue pledges fail to dispel sickness fears

17 grudnia, 2010

European leaders wrapped up their final summit of a tumultuous 2010 Friday pledging to defend debt-plagued euro nations to the hilt, but amid stark warnings the sickness is far from cured.

European Union President Herman Van Rompuy said plans for the 27 states to rewrite their treaty and set up a permanent emergency rescue fund from mid-2013 would make the world\'s biggest tariff-free trading bloc "more crisis-proof."

The successor to a temporary, IMF-backed trillion-dollar facility created after the crisis was unleashed in Greece, would anchor "a comprehensive response to any challenges, as part of the eurozone\'s new economic governance."

German Chancellor Angela Merkel said the summit "clearly stated that the euro cannot be dissociated from Europe" and vowed that the size of the future bailout fund, poised to introduce penalties for private-sector holders of government debt, would be "convincing."

Alongside Greece, Ireland has also had to call in emergency loans from partners, with Portugal, Spain, Belgium and even Italy also considered at risk by experts going into 2011.

Merkel maintained that the more "coherent" cross-border economic policy becomes, citing comparisons of national budgets and even social welfare systems, "the less the fund\'s size will matter."

French President Nicolas Sarkozy called for the EU to "go further," but British Prime Minister David Cameron was more interested in crimping the bloc\'s budget for the next decade.

Despite a vow by the EU collectively to do "whatever is required," analysts anticipating fresh bailouts complained at a lack of detail.

Carsten Brzeski, senior economist with ING, accused EU leaders of indulging in "window-dressing," with Frank Engels of Barclays Capital decrying "yet another missed opportunity" to meet investor concerns and calm markets.

Jonathan Loynes, chief European economist at Capital Economics, said the EU was "typically vague," doing "little to address uncertainties over the burden likely to be shouldered by private sector bondholders."

Private sector investors in eurozone government bonds fear they will have to share the pain -- taking \'haircuts\' on their investment -- if a country needs to restructure debt in the future.

Demanding higher rates of return in the belief they are at greater risk of losing money would only twist the debt screw tighter for already struggling eurozone members such as Portugal.

Neither Greek nor Irish debt was restructured as part of their international bailouts.

Loynes also noted that "the core economies\' resistance to a further increase in the size of the bailout fund, or the introduction of common bonds, appears to be hardening."

Common or so-called E-bonds would be a joint eurozone bond backed by all its members, both weak and strong.

Supporters say such bonds would allow the weaker eurozone nations to raise fresh funds for domestic use more cheaply, but critics led by powerhouse economy Germany, fear their borrowing costs would only rise.

Not all analysts were so downbeat, with Jean-Dominique Giuliani, the head of the Robert Schuman Foundation think tank, hailing "intelligent" politics compared to markets\' "short and sometimes questionable scale of judgement."

Even he, though, conceded that EU leaders need to "make quicker decisions."

The euro rose while European stocks fell Friday as positive German data and Thursday\'s EU statements of intent helped to offset a huge ratings downgrade for Ireland and more Spanish debt problems.