New EU measures raise pressure on Merkel

May 21, 2012 at 3:00 AM   |   Comments

BRUSSELS, May 21 (UPI) -- European leaders are drawing up eurozone debt-crisis plans already rejected by German Chancellor Angela Merkel, to discuss at a European Union summit.

The proposals follow an agreement by Merkel and other European leaders at the Group of Eight summit in Camp David, Md., to support a policy of economic growth over austerity -- a turnaround for Merkel, who previously staunchly insisted on fiscal discipline, including slashing government spending.

The proposals to be presented at the informal summit Wednesday could include empowering the eurozone's new permanent $640 billion rescue fund to directly recapitalize faltering European banks, the Financial Times reported.

EU rescue funds intended for banks, at present, may only be lent to national governments, which then recapitalize weak banks in their countries. But such lending adds to a nation's sovereign debt.

The new permanent rescue fund, the European Stability Mechanism, is widely expected to replace the eurozone's current, temporary European Financial Stability Facility and European Financial Stabilization Mechanism in July.

The idea -- championed by French President Francois Hollande, Italian Prime Minister Mario Monti and European Commission President Jose Manuel Barroso -- was previously backed by some European leaders but continually forced off the agenda by Merkel, the Times said.

Hollande said after the weekend's G8 summit he had backing from other European leaders to raise an additional idea of issuing eurozone bonds that would be backed by governments of the entire 17-country region.

The G8 members included the leaders of Britain, Germany, France, Italy, Japan, Canada, Russia, as well as the United States.

The informal summit is officially to focus on proposals to spur growth, rather than crisis-response measures, officials said. The stimulus and job-creation proposals would be agreed to at their next formal summit June 28-29.

French Finance Minister Pierre Moscovici was to meet with German Finance Minister Wolfgang Schaeuble in Berlin Monday to map out a revised plan for the euro, officials said.

Moscovici has said France will no longer ratify European fiscal agreements unless they include measures to boost European growth.

"We're all very pleased that France wants to offer new initiatives with its newly elected president," Schaeuble told the Bild am Sonntag newspaper Saturday.

"The German government is ready to talk about anything," he said, ruling out measures that would raise debt.

British Prime Minister David Cameron -- a conservative and Merkel supporter -- told Greek voters casting their votes for a new government June 17 that if they do not meet their financial commitments, they must "give up on the eurozone."

Most Greek voters voted for candidates who campaigned against the Greek bailout's austerity measures, although most surveyed after the election said they wanted Greece to stay in the eurozone.

Monti told CNN Sunday he believed Greece and Europe would find a solution that will protect the eurozone and most likely keep Greece in the monetary union.

"I think as we approach the 17th of June election day, the feeling in Greece that it's crucial for their country ... to stay in the euro will focus minds and political programs on putting together a collective willingness to do so," he said.

"I think an equilibrium will be found," he said.

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