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Eurozone agrees to boost defences, coordination

12 marca, 2011

Eurozone leaders agreed Saturday to boost defences against a destabilising debt crisis stalking weaker members by strengthening a debt rescue fund and increasing economic policy coordination.

European Council President Herman van Rompuy said the agreements, to be finalised at a full EU summit March 24-25, "should allow us to finally turn the corner" on a crisis that has tested the whole euro project to breaking point.

Van Rompuy spoke after drawn-out talks, which ended shortly before dawn and saw testy exchanges between new Irish Prime Minister Enda Kenny and his colleagues over the terms of Dublin\'s debt rescue.

Greece meanwhile earned praise and easier repayment conditions.

After Greece was bailed out last May to save it from a debt default, the EU set up the European Financial Stability Facility with funds of 440 billion euros ($610 billion) to help others in need -- in the event, Ireland in December.

The EFSF, however, can in practice only make some 250 billion euros available -- but this will be increased to a full 500 billion euros under the permanent European Stability Mechanism which replaces it in 2013, van Rompuy said.

The systems will also be allowed to buy up government bonds directly, providing another important source of funds for countries facing funding problems.

These changes have been in the pipeline for some time as the financial markets have heaped pressure on weaker eurozone states struggling to raise fresh money to help stabilise their public finances.

Van Rompuy said the meeting had also adopted a \'Euro Pact,\' which "expresses everybody\'s strong political commitment to do what is required for our common good, the euro.

"All 17 leaders of the eurozone are convinced that their economies need to be more competitive and more convergent. This is key," he said.

Germany, Europe\'s powerhouse economy, had wanted progress on the pact and especially its policy convergence provisions in return for increasing the funds available to the EFSF and ESM.

The pact covers four areas for closer cooperation -- competitiveness, employment, sustainable public finances and reinforcing financial stability.

Individual states will be responsible for specific measures -- an important caveat for smaller members jealous of their independence -- but they are all supposed to work towards these same goals.

The logic is that if eurozone states have the same goals and obey the same rules, then the huge debt burdens and public deficits straining public finances and threatening the euro will ultimately be brought under control.

Van Rompuy said that the "objectives may sound familiar. What has changed, however, is the political commitment."

The Financial Times however called the summit a "wasted opportunity", saying that Germany and other creditor countries appeared to be "determined to foist their narrow recipes for reform" on the likes of Greece, Ireland and Portugal.

"Eurozone policymakers are still reluctant to concede that the origins of the debt crisis lie not just in the policy errors of Irish and southern European governments but in the willingness of banks, in Germany and other \'core\' countries as much as in the \'peripherals\' to engage in reckless and dodgy investments," the paper said in an editorial.

"European leaders cannot afford to pretend much longer that all will be well with a bit more belt-tightening and a set of fiscal rules that lack credible enforcement mechanisms."

Agreement had at one stage looked uncertain as the talks dragged on, held up by sharp exchanges between Kenny and his peers over Dublin\'s request to renegotiate the terms of its bailout.

Kenny warned he would fight for "weeks" to get the rates on Ireland\'s bailout reduced as his eurozone partners agreed to cut the cost for Greece\'s package by a full percentage point and extend its repayment to seven-and-a-half years from three years.

The special summit was called with Portugal coming under intense pressure, as sceptical markets bet Lisbon would have to seek help sooner rather than later.

The meeting congratulated Lisbon for its efforts to restore its public finances to EU norms but the real test comes on Monday when markets reopen in the shadow of Japan\'s earthquake and violence in Libya.