Eurozone four leaders agree economic growth package

The four leaders also agreed to push for a pan-European tax on financial transactions

Leaders of the eurozone’s four biggest nations have agreed in principle to measures to boost growth equal to 1% of the currency area’s economic output.

Germany, France, Italy and Spain outlined plans to push for a 130bn-euros (£104bn; $163bn) package.

But analysts suggest that with little or no new money involved, the significance of the agreement between the four was more symbolic than actual.

There is also still no consensus on issues such as common eurobonds.

“We want there to be a significant European growth package,” said Italian PM Mario Monti.

He appeared at the press conference alongside Spanish PM Mariano Rajoy, German Chancellor Angela Merkel and French President Francois Hollande.

The four met in Rome ahead of an EU summit on the euro crisis next week.

The growth package is expected to comprise several measures already in the works to boost spending on infrastructure and other investments, backed by European taxpayer money:

Symbolic because all four key eurozone leaders agreed to defend the single currency, but they didn’t really tell us how they are going to do it.

All four leaders were happy to make the argument for growth, putting forward this plan for the 130bn euro growth fund.

But when you delve into the detail this is not new money, this is money already included in the EIB and spare money still hanging around in regional funds.

So it is not a massive injection of cash to rescue struggling European economies.

But for Francois Hollande, it will be something of a diplomatic feather in his cap to be able to return to Paris to say I wanted a growth fund and I got it.

• Increasing the capital of the European Investment Bank by 10bn euros, which would enable the EU government-backed institution to increase its lending capacity by several times that amount;
• Fully deploying unused money in the European Commission’s regional funds;

The creation of pan-European “project bonds” – common debts used to finance specific investment projects such as the construction of pan-european transport networks.

The agreement may represent a political victory for the recently elected French president, who has demanded a growth pact despite strong reservations expressed by his Germany counterpart.

The leaders also sought to agree other proposals on closer integration – including a banking union and a financial transactions tax – to be put forward at the broader EU summit.

However, at the end of less than two hours of talks, they did not reach any agreement on the idea of eurobonds – jointly-backed eurozone government debts used to finance EU government budgets.

‘Here to stay’

Mr Monti had warned his EU peers that failure to agree on joint action would encourage market attacks on their economies.

He had predicted “progressively greater speculative attacks” without unified action from all the eurozone members.

Speaking after the talks, Mr Monti asserted in English that “the euro is here to stay, and we all mean it”.

“We expect the conclusions of the EU summit will be more solid and credible compared with previous summits as far as growth is concerned,” he predicted.

French President Francois Hollande, who made agreement of a European growth pact the central plank of his election platform last month, said the package would be “indispensable”.

He said the four eurozone leaders had, he said, “made the prospect for growth much more concrete”, asking whether anyone would have imagined a few weeks ago that the idea of growth would be on the agenda of the EU summit.

Tobin tax

A tax on financial transactions, originally proposed by economist James Tobin as a levy on currency conversions. The tax is intended to discourage market speculators by making their activities uneconomic, and in this way, to increase stability in financial markets. The idea was originally pushed by former UK Prime Minister Gordon Brown in response to the financial crisis. More recently it has been formally proposed by the European Commission, with some suggesting the revenue could be used to tackle the financial crisis. It is now opposed by the current UK government, which argues that to be effective, the tax would need to be applied globally – not just in the EU – as most financial activities could quite easily be relocated to another country in order to avoid the tax.

The French president said the four had also agreed to push for a pan-European tax on financial transactions – also known as a Tobin tax – another of the French President’s election pledges.

The idea is opposed by the UK government, who says it would hurt the City of London unless the tax were also implemented in other non-European international financial centres, as well as by Sweden.

At the same time as the meeting in Rome, EU finance ministers – including the UK’s George Osborne – agreed at a separate meeting in Luxembourg that no financial transaction tax would be applied to the EU as a whole, although some member states could push ahead with the idea on their own.

No agreement was reached on the idea of eurobonds – common eurozone government debts, which have been opposed, at least in the near term, by Germany.

Mr Hollande reasserted his support for the idea, saying “I consider eurobonds to be an option… and not in 10 years” – an implicit criticism of German Chancellor Merkel’s position.

Spanish banks
German Chancellor Angela Merkel told reporters that growth and solid finances were two sides of the same coin and she stressed the importance of greater political integration.

Friday’s talks had been expected to involve a formal Spanish request for eurozone financial assistance.

However, no mention of a request was made in the press conference following the talks.

The international community wants the eurozone to demonstrate what stands behind the single currency”

Spain is expected to ask for up to 100bn euros to save its distressed banks.

The Spanish, Italian and French leaders have advocated a banking union for the eurozone, likely to entail much stronger central regulation and supervision of European banks, as well as the creation of a common Europe-wide deposit guarantee scheme.

Spanish and Greek banks have experienced significant withdrawals of deposits in recent months, on fears that they may be insolvent, or that their home nations may exit the euro.

All the banks in eurozone peripheral economies, including Italy, have found it very hard to borrow from other banks and money managers since last autumn, forcing the European Central Bank to provide them with an unprecedented trillion euros of three-year emergency loans over the New Year. –BBC News