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Eurozone agrees to boost defences against debt crisis

12 march 2011, 10:43
Eurozone leaders agreed Saturday to boost defences against a destabilizing debt crisis stalking weaker members by strengthening a debt rescue fund and increasing economic policy coordination, AFP reports.

European Council President Herman van Rompuy said the agreements, to be finalized 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 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 stabilize 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 if the "objectives may sound familiar. What has changed, however, is the political commitment."
Agreement had at one stage looked uncertain as the talks dragged on, held up by sharp exchanges between new Irish Prime Minister Enda Kenny and his peers over Dublin's request to renegotiate the terms of its bailout.

Ireland has "not yet met all the required conditions," Van Rompuy said, adding: "They haven't met all the conditions so can't have reduced interest rates."

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 7-1/2 years from three years.

Kenny insisted he had a strong mandate from Irish voters to cut the 5.8-percent rate Dublin pays on its 67.5 billion euros of loans but his fellow leaders wanted him to bring Ireland favorable business tax rates up to their level in return.

The special summit of the 17 euro nations was called with Portugal coming under intense pressure, as skeptical markets bet Lisbon would have to seek help sooner rather than later despite another austerity package announced Friday.

The meeting specifically congratulated Lisbon for its efforts to restore its public finances to EU norms.

But they will face a fierce test on Monday when markets reopen in the shadow of Japan's massive earthquake and escalating violence in Libya, which combined have jolted confidence in the global economic recovery.

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