Tags: EU | Budget | Showdown | Greece

EU Leaders Head for Budget Showdown After Failing to Help Greece

Wednesday, 21 Nov 2012 09:36 AM

 

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European leaders head into their second confrontation this week conceding they’re likely to fail to agree on a seven-year budget plan just as they failed to strike a deal on Greek debt.

German Chancellor Angela Merkel told lawmakers in the national parliament Wednesday that budget negotiations slated for a summit meeting tomorrow may slide into next year as France rejected cuts to farm subsidies and the U.K. insisted spending must be reduced.

“There are deep divisions between the member states,” Irish Prime Minister Enda Kenny said in the Dublin parliament. “There are fears that it will not be possible to get a deal.”

European Union leaders are preparing to square off over the budget in Brussels Thursday after euro-region finance ministers saw their efforts to agree on a debt-reduction plan for Greece founder early Wednesday. More than 11 hours of talks ended without a deal early Wednesday morning as a bloc of top-rated creditors led by Germany refused to write-off a portion of their aid loans.

That stance meant the finance chiefs were unable to scrape together enough funds from other sources to help alleviate Greece’s debt burden, set to hit 190 percent of gross domestic product in 2014.

Greek Woes

Greece’s fiscal woes have defied three years of rescue efforts, rekindling doubts about Europe’s crisis-containment strategy and maintaining a cloud over the euro, postwar Europe’s signature economic accomplishment.

“We have a series of options on the table on how to close the financing gap,” German Finance Minister Wolfgang Schaeuble told reporters. “We discussed the issue very intensively, but since the questions are so complicated we didn’t come to a final agreement.”

The euro fell less than 0.1 percent to $1.2812 as of 2:21 p.m. in Brussels. The Euro Stoxx 50 Index gained 0.3 percent to 2517.56, while Greek bonds rose for a ninth day, the longest run of gains since the nation’s debt was restructured in March. The yield on Greek 10-year notes fell 26 basis points to 16.84 percent.

Finance ministers failed to tackle the dual task of steering an extra 32.6 billion euros ($41.8 billion) to Greece through 2016 while finding a way to tame the resulting increase in Greek debt, already the highest in Europe and deemed “unsustainable” by the International Monetary Fund.

More Work

“Further technical work on some elements of this package” is needed, Luxembourg Prime Minister Jean-Claude Juncker said in a statement. He stopped short of predicting a deal at the next meeting, which will come after a EU budget summit starting tomorrow that risks further inflaming tensions between the richer north and poorer south.

The sovereign debt crisis, which has seen creditor countries in the north demand austerity from the south as a condition for aid, is aggravating the negotiations over the EU budget which has to be agreed every seven years.

The U.K., where Prime Minister David Cameron is facing a surge of anti-European sentiment both in his party and in the electorate, is leading the push for European austerity including salary cuts for EU officials while Spain is seeking to protect its subsidies as it battles a five-year slump. France, which this week was stripped of its top credit rating by Moody’s Investors Service, is resisting cuts to farm aid, which account for about 60 percent of EU spending.

EU President Herman van Rompuy will present a revised proposal at the start of a meeting, which is slated to begin at 8 p.m., an EU official said today. He told European leaders in a letter sent yesterday he has arranged for the summit to be extended if necessary in order to push through a deal.

“Let there be no mistake,” Van Rompuy said in the letter. “The absence of an agreement would be harmful for all of us.”

© Copyright 2014 Bloomberg News. All rights reserved.

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