European Union leaders piled pressure on Italy on Sunday to speed up economic reforms to avoid a Greece-style meltdown as they began a crucial two-leg summit called to rescue the euro zone from a deepening sovereign debt crisis.
The aim is to agree by Wednesday on reducing Greece’s debt burden, strengthening European banks, improving economic governance in the euro area and maximizing the firepower of the EFSF rescue fund to prevent contagion engulfing bigger states. Before the 27 leaders began talks on a comprehensive plan to stem the crisis, German Chancellor Angela Merkel and French President Nicolas Sarkozy held a private meeting with Italian Prime Minister Silvio Berlusconi, officials said. Diplomats said they wanted to maximize pressure on Rome to implement structural labor market and pension reforms to boost Italy’s economic growth potential and reassure investors worried about its huge debt ratio, second only to Greece’s. A German government source said Merkel and Sarkozy underlined “the urgent necessity of credible and concrete reform steps in euro area states”, without which any collective EU measures would be insufficient. Merkel warned in a speech on Saturday that if Italy’s debt remained at 120 percent of gross domestic product “then it won’t matter how high the protective wall is because it won’t help win back the markets’ confidence”.
Arriving for Sunday’s sessions of the full EU and the 17-nation euro zone, the leader of Europe’s most powerful economy played down expectations of a breakthrough, telling reporters decisions would only be taken on Wednesday. Before then, Merkel must secure parliamentary support from her fractious centre-right coalition in Berlin for unpopular steps to try to save the euro zone. European Council President Herman Van Rompuy, chairing the summit, painted a somber picture of the economic challenges facing Europe in his opening remarks, citing “slowing growth, rising unemployment, pressure on the banks and risks on the sovereign bonds”. “Our meetings of today and Wednesday are important steps, perhaps the most important ones in the series to overcome the financial crisis, even if further steps will be needed,” he said.
Finance ministers made progress at preparatory sessions on Friday and Saturday, agreeing to release an 8 billion euro lifeline loan for Greece and to seek a far bigger write-down on Greek debt by private bondholders. They also agreed in principle on a framework for recapitalizing European banks to the tune of just over 100 billion euros to help them withstand losses on sovereign bonds, although some details remain in dispute. Sarkozy, who disagreed sharply with Merkel over strategy last week, pressing to put the European Central Bank in the front line of crisis-fighting, said after meeting her again on Saturday he hoped for a breakthrough in the middle of the week. “Between now and Wednesday a solution must be found, a structural solution, an ambitious solution, a definitive solution,” Sarkozy said. “There’s no other choice.”
23 October 2011, Sunday / REUTERS, BRUSSELS