EU leaders eye balanced budget pact in Brussels


European Union leaders meeting Monday in Brussels are expected to agree on a balanced budget pact amid persistent concern over the Greek economy. Greece on Sunday rejected a German proposal that the EU assume control of its taxing and spending.

By News Wires (text)

AFP – European leaders bid to close a chapter in the debt crisis Monday with a pact on balanced budgets, but the eurozone Achilles heel that is Greece threatens to distract them once again.

Heads of state and government from the 27 European Union states gather from 3:00 pm (1400 GMT) in Brussels, with Belgium on strike against further spending cuts envisaged after yet another credit rating downgrade.

For once, there is no need for “crisis” adjectives — the rhetoric on Europe has changed much in the two years since the scale of the problems in Athens threw the eurozone into political chaos.

“Imminent, very, very soon,” was how senior EU sources described on Sunday night the prospect of agreement on the conditions required to underpin a fresh willingness to fix a new international bailout.

At the summit, leaders want to focus on new treaty obligations for minimal deficits — in theory, ending ever-rising government debt — plus the legal framework for a rescue fund dubbed a financial “firewall.”

Bit by bit, governments are winning over the markets — but for every firm step taken, there remain doubts about the logic of keeping Greece on board: a weekend German call for Athens to surrender budgetary sovereignty a case in point.

The “product of a sick imagination,” said an outraged minister in the caretaker Athens government.

German Finance Minister Wolfgang Schaeuble told Monday’s Wall Street Journal that only radical reforms in Greece could unlock a second bailout first promised in October but since subservient to anticipated European recession.

Serious partners on Germany’s side suggested to AFP at the weekend that the plan put forward by Berlin for Greece to cede budgetary sovereignty to Brussels on a temporary basis was simple blackmail, but other diplomats saw a trend.

The extent to which today’s eurozone “champion” can poke its nose into the affairs of other states is not a subject for the summit termed “informal.”

The big decisions on issues like boosting rescue funding are for the next March 1-2 gathering.

First on Monday’s menu is final agreement on a treaty designed to reinforce fiscal discipline.

This was the red line for Germany in exchange for financial solidarity with struggling eurozone partners.

The pact will apply to 26 countries inside and outside the eurozone, excluding Britain, and those that want to tap future rescue funding will have to ratify this treaty on fiscal discipline in order to do so.

Its entry into force could unlock fresh anti-crisis measures from the European Central Bank (ECB).

Actual signing of the deal that will introduce a “golden rule” obliging balanced government books, backed by the threat of court-ordered cash penalties for any state that drags its heels, is scheduled for the March “formal” summit.

Greece is seeking to wrap up a deal with private investors that have been asked to take a “haircut” worth about half the 200 billion euros owed to them.

Talks have been snagged on the amount of interest to be paid on the remainder, with Athens facing a critical bond reimbursement worth 14.5 billion euros on March 20.

Venizelos told reporters Saturday he was hopeful of a deal within days.

Prime Minister Lucas Papademos, meanwhile, said Sunday there was “total convergence” among his political allies on new austerity measures needed for a second bailout and on debt cuts to avert default.

If a voluntary exchange of bonds wipes out 100 billion euros ($130 billion) off the country’s debt of 350 billion euros, a second public aid package worth at least 130 billion euros may succeed, although top sources suggest more is unavoidable.