MEPs: Decisions of euro area leaders are right but insufficient

Evelina Topalova, July 28, 2011

MEPs from different groups in the European Parliament welcomed the decisions taken at the extraordinary summit of the euro area on 21 July. An especially positive step, they said, was to relieve the conditions of the bailout loans to Greece, Ireland and Portugal. MEPs from these countries expressed such a wish as early as May during a debate with the European Economic and Monetary Affairs Commissioner Olli Rehn.

A good decision, according to Parliament, is to change the functioning of the euro area rescue fund - the European Financial Stability Facility (EFSF). It will be allowed to buy debt on secondary markets, to grant credit lines and to finance recapitalisation of banks, including in non-programme countries. However, MEP Sharon Bowles (ALDE, UK), Chair of the EP economics and monetary committee believes that “the facility will need to be much larger - I have previously said EUR 2 trillion; some other commentators have now worked up to EUR 1 trillion.” ALDE leader Guy Verhofstadt noted that this new flexibility of the fund “is a step toward its "de facto" conversion into a real European Monetary Fund. It was long over due.”

Expectedly, he criticised the leaders that “Member States did not again show the courage to take the longer term step to meet the inevitable, namely to create a Eurobond market.” The idea of Eurobonds was launched in December last year by Luxembourg Prime Minister and Eurogroup President Jean-Claude Juncker and Italian Finance Minister Giulio Tremonti. So far it meets strong opposition from some member states, particularly Germany, but is widely supported in the European Parliament. Under its pressure and in the context of difficult negotiations on EU's economic governance package, the Commission has engaged to present a report and even legislative proposals for the creation of Eurobonds as early as this autumn.

Greens/EFA co-president Rebecca Harms also commented that increasing only the scope but not the funding of the EFSF is not enough. The risk remains the debt crisis to continue and to spread to Spain and Italy, because member states have failed “to ensure the EFSF has sufficient funds … by extending the guarantees and ultimately backing it up with proper Eurobonds”.

The Greens also think that “the summit conclusions seem to exaggerate the extent of private sector involvement in Greek debt restructuring” and that this decision should be applied not only to Greece but to other countries. The logic pursued by the Euro leaders and the ECB was exactly the opposite – namely that the guarantee the private sector not to be threatened by new losses is essential to contain the debt crisis.

As usually, the Greens criticised the intergovernmental approach of the leaders, defined as “the Achilles heel” of the crisis response and insist on European Parliament's involvement in decision making in this area. The other Greens/EFA co-president Daniel Cohn-Bendit blamed the euro area leaders that they “remain a few paces behind in terms of the necessary decisions that need to be taken”. He called the member states to move “beyond the narrow politics of rescue and austerity and ensuring those member states in difficulty are given a real perspective by supporting them to invest in kick-starting their economies”.

A good news for the EP from the eurozone leaders' meeting is the commitment to achieve a rapid agreement between Parliament and Council in the negotiations on EU's economic governance package and especially the most controversial issue of voting rules in the Council. As euinside repeatedly wrote, Parliament insists the reversed majority rule to be applied on every stage of the procedure under the Stability and Growth Pact. This means the Commission’s proposals to be considered approved unless they are rejected by the Council with a qualified majority. According to the Parliament this would limit the possibility for political horse trading between the Member States and would enforce the Commission's role in EU's economic governance.

Guy Verhofstadt's remark clearly reveals the expectations of Parliament: ”We hope that the call for reaching an agreement in the specific case of the voting rules in the preventive arm of the Stability and Growth Pact means supporting the Parliament's position.” The economic governance was the topic of a discussion organized by euinside with MEPs in Brussels. The debates were continued in Sofia with the participation of representatives of European and national parliaments, the European Commission, economists, political scientists and citizens.

In June MEPs supported the so called Six Pack politically. However, it can be legislatively adopted only after an agreement is achieved in the negotiations with the Council.

The debt crisis in the euro area