x Abu Dhabi, UAESaturday 22 July 2017

Hollande clashes with Germany over euro bonds on first Brussels outing

Billed as an informal dinner, disagreement between the new French president and Germany takes centre stage at the meeting.

BRUSSELS // The new French president's first outing in Brussels turned into a tense emergency meeting with European Union leaders over the ailing euro yesterday.

Billed as an informal dinner, disagreement between François Hollande's socialist government and Germany took centre stage at the meeting, with France pushing for all 17 members of the euro zone to guarantee each other's debt through euro bonds. Angela Merkel, the German chancellor, vehemently opposes this plan as her country stands to lose the most.

Pierre Moscovici, the French finance minister, met his German counterpart, Wolfang Schaeuble, on Monday and acknowledged that there was a "disagreement", reported the French newspaper Le Monde.

Mr Schaeuble rejected the idea of euro bonds on German radio before the summit. He said euro bonds would "provide totally the wrong incentive" and reward countries for overspending.

European solidarity and growth stimulus, particularly in hard-hit southern euro-zone countries, are seen as being crucial before new elections in Greece next month.

Any goodwill gestures towards Greece may help pro-euro parties there to eke out a win and keep the country in the single currency.

Mr Hollande said ahead of the talks that he would do everything to convince Greece to stay in the euro zone and, "convince those Europeans who may have doubts about the need to keep Greece in the euro". He spoke after meeting the Spanish prime minister, Mariano Rajoy, in Paris.

But EU officials have agreed that each country should prepare for a Greek exit from the euro, Reuters reported yesterday.

Greek anger at austerity measures, as well as the new French president's position, have shifted the EU's focus.

The refrain at the beginning of the year was "cut, cut, cut", now it is "growth, growth growth".

The Organisation for Economic Co-operation and Development (OECD) warned on Tuesday in its biannual forecast that overly aggressive budget cuts threatened to throttle economic growth.

"The risk is increasing of a vicious circle, involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth," said Pier Carlo Padoan, the OECD's chief economist.

Christine Lagarde, the head of the International Monetary Fund, struck a similar tone in London on Tuesday.

"Policies to bolster demand before low growth becomes entrenched are needed," she said.

She also praised the United Kingdom's Conservative-led government for reigning in spending. The UK is not part of the euro zone but the crisis in the 17-nation bloc is affecting it.

In a sign of deepening divisions among European countries over the euro crisis, Spain, Italy, the European Central Bank (ECB) and the European Commission are supporting Mr Hollande's quest for euro bonds.

After the meeting with Mr Hollande, Mr Rajoy reiterated that he would not seek a European bailout for his country's troubled banks.

The previous French president, Nicolas Sarkozy, also wanted Germany to agree to euro bonds and to a more active role of the ECB in tackling the crisis, but he backed down in the face of German opposition. The outcome is unlikely to be much different this time.


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