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Sink-or-swim summit for debt-laden EU

19 october 2011, 17:19
Europe's leaders gather for a sink-or-swim summit starting Friday to seek a "lasting" solution to the nearly two-year-old debt crisis and prevent EU disintegration, AFP reports.

The big two of Germany and France are at odds entering marathon Brussels talks culminating Sunday night amid global pressure to avert the "scary" recession US President Barack Obama fears awaits if Europeans fail.

While German Finance Minister Wolfgang Schaeuble has suggested Berlin will offer only "cover for uncertainty on financial markets," Paris wants much more, leading French Prime Minister Francois Fillon to warn that "if we don't succeed on Sunday, Europe will face very great risks."

As Greeks launch a fresh 48-hour shutdown around another parliamentary vote on ever-deeper EU-IMF austerity, a climate of protest stretching right to Wall Street has added to the urgency with which the 17-nation eurozone must resolve its failings.

Already put back a week, and with markets threatening a fresh tailspin, the clock is ticking towards a deadline when Europeans meet with the United States, Japan and other G20 rivals on November 3-4.

In a nutshell, the 27-state European Union must:

-- micro-manage how much Greece can default on its massive loans, striking a delicate balance between debt write-downs that reflect actual market values, and perceived bankruptcy;

-- plug the consequent hole in banks' balance sheets, a job the International Monetary Fund reckons could cost 200 billion euros, and that ratings agencies suggest could result in a downgrade for France;

-- nail down safeguards against any repeat of the present mess, to begin with by enhancing the eurozone's existing financial "firewall" to convince doubtful investors that Italy and Spain won't fall into the same desperate spiral;

-- and also try to agree further ways to control economic policy centrally across the hugely varying 17-nation eurozone.

Culminating in a 'mother-of-all-summits' on Sunday, finance, foreign and prime ministers will all troop in to Brussels alongside permanent EU officials.

All, even Germany's Chancellor Angela Merkel, are under international orders to turn the gaze of market wolves elsewhere.

French President Nicolas Sarkozy -- since hit by a new warning of a credit rating downgrade -- has admitted Europe's "destiny" will be decided in the coming days.

The biggest and best-run economy, Germany fears it will lose its hard-won reputation for good financial housekeeping -- if it bails out partners too much and moves closer to sharing sovereignty with other nations.

Economic decision-making is already moving in that direction, but opponents warn the logical outcome is a loss of national power in all manner of spheres.

The limits of how much direct control Germany can afford to cede "will be set by the people," Hans Martens, who heads the leading Brussels think tank, the European Policy Centre, told AFP.

Martens wants to believe that "whatever it takes," Europe's political elite will do "what has to be done" to keep together the union that ensured post-World War II peace.

But even he admits that decades of ever-closer integration threatens to unravel.

The rising weight of populist electoral voices "may in the end scare the politicians -- and this could not only mean the end of euro cooperation, but also of the EU," Martens said.

Similarities exist with a climate of pent-up pressure to deliver, that marked the run-up to a May 2010 meeting just days after Europe had agreed a landmark bailout for Greece.

Then, they came up with a trillion-dollar response anchored in a new European Financial Stability Facility (EFSF).

Supposed to cater for all emergencies, it nontheless took until last Thursday -- after a second vote in ex-Communist Slovakia -- for the EFSF's coffers to be increased to 440 billion euro ($600 billion).

But officials are already engaged in intricate financial footwork to boost the fund's firepower, so it can morph five-fold into an impregnable three trillion dollars.

Such a warchest is required to ring-fence Italy and Spain as well as fund a second rescue for Greece, notionally agreed in July but put on ice while the EU tries to settle how much private-sector debt should now be ripped up.

To achieve that balancing act, leaders need to find a way to inject more money into banks to ensure they can withstand losses and pressure.

The EU has also set new targets on a broad gamut of criteria to harmonise policy, from public budgets to tax bands or volumes of red tape. Sanctions for the worst miscreants should be applicable by Christmas.

But central diktat, however well-intentioned, has stirred a backlash, as Martens recognises.

Governments in Ireland and Portugal both lost elections after swallowing a bitter pill of reforms prescribed alongside aid.

Finland has lurched to the right, alongside the Netherlands and Austria, while Germany's highest court has ordered much greater oversight of all future bailout participation.

All the while, Chancellor Merkel's electoral base has progressively receded.

Should the drift accelerate, Europe may end up "dominated" by "extreme parties or groups," says Martens.

He concludes despairingly: "If that happens, I will probably move to New Zealand."

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