Eurozone leaders lock trade horns

BRUSSELS: Germany wants draconian new rulebook for currency; crisis for Portugal following credit rating downgrade European leaders gather for a two-day summit in Brussels today (25MAR) riven by disputes over whether and when to rescue Greece from financial collapse.

There were frantic efforts last night to patch up a deal, with Germany insisting on a radical rewriting of the rules for the single currency before helping Athens and chancellor Angela Merkel looking isolated but strong in dictating terms for trying to settle the worst crisis the euro has faced.

The single currency’s woes mounted yesterday when another weak link in the euro, Portugal, had its credit rating downgraded by Fitch because of pessimism over its recovery prospects. Worries about contagion and market uncertainty over the political and financial response to the Greek crisis pushed the euro to its lowest level in 10 months.

Focus for European leaders was shifting from the Greek crisis to a broader, more fundamental dispute over the operation of the single currency, with Berlin intent on turning the crisis into an opportunity to introduce draconian new conditions for the eurozone, including, in the last-resort, expulsion of serially delinquent single currency countries.

“If we’re clever, we learn from crises,” said the German finance minister, Wolfgang Schauble. “There must be an automatic system that hurts those who persistently break the rules.” The German wish list includes depriving fiscal sinners of EU cohesion funds and of votes in eurozone decision making councils, tougher policing of the budgets of suspect countries, and the establishment of a European Monetary Fund as a last-resort rescue vehicle. Germany wants a political commitment to change the euro system before agreeing to rescuing Greece, where the debt crisis could result in a sovereign default.

France, Spain, the European commission and many others want prompt action. But Merkel has been deeply reluctant even to discuss the crisis at today’s summit. While Paris and Madrid sought to convene a parallel summit of leaders of the 16 single currency countries for only the second time since the euro was created in 1999, Merkel yesterday was resisting.

“Greece needs no money. Angela Merkel thinks it could be a wrong sign to Greece to give now a signal of financial help,” Gunther Oettinger, Germany’s European Commissioner for Energy, said.