The European Union has given itself three weeks to bring the eurozone back from the brink, with leaders aiming to finalise plans to recapitalise banks, increase the firepower of the region's bail-out fund and bring the crisis in Greece under control.
José Manuel Barroso, the president of the European Commission, sought to take the initiative yesterday (12 October), launching a five-point “roadmap for stability and growth”, which he said was vital to “break the vicious circle between doubts over the sustainability of sovereign debt, the stability of the banking system and the EU's growth prospects”.
“As the crisis narrows in, I see no other option than to act now,” he told the European Parliament.
Barroso wants leaders of the EU's member states to agree to his action plan when they meet for a European Council on 23 October. He is supported in this by Angela Merkel, the chancellor of Germany, and Nicolas Sarkozy, the president of France, who, after bilateral talks on the same issues on Sunday (9 October), said it was imperative that the crisis was solved “before the month is out”.
Barroso's eight-page action plan comprises measures to stabilise Greece, including calling for the disbursement of the next €8 billion tranche of its bail-out loan; to boost the firepower of the European Financial Stability Facility (EFSF) and bring the launch of its permanent replacement forward from 2013 to 2012; to implement a “co-ordinated” approach to bank recapitalisation, based on higher capital requirements; to fast-track the Commission's policies for growth; and to improve economic governance, including new powers for the EU to intervene in national governments' budgets.
The Commission president said that the measures were needed as “the crisis threatens to become systemic”. This echoed a warning issued to the Parliament on Tuesday (11 October) by Jean-Claude Trichet, the outgoing president of the European Central Bank, who said that the eurozone's problems had deteriorated over the past three weeks.
The bank recapitalisation plan, which is being drawn up by the European Banking Authority, could see banks forced to raise their core tier-one capital ratios – the main indicator of financial resilience – to 9%, much higher than the 6% level that had been demanded by this year's stress tests. Barroso said that banks should be prevented from paying out dividends and bonuses until they put in the required capital.
He did not give any specific details about the plans for bank recapitalisation, the EFSF or for Greece, probably because the Commission still has to resolve differences with national capitals in the coming days.
There is pressure from governments around the world for the EU to have a comprehensive deal on the table by the time of the G20 leaders' summit in Cannes on 3-4 November. The European Council has been put back from its original date of 17-18 October to allow more time for officials to negotiate on sticking-points, such as the participation of the private sector in future bail-outs.
An intense series of meetings will take place before the European Council. Eurozone finance ministers are expected to hold an emergency meeting on the evening of 21 October, followed the next morning by a meeting of all 27 of the EU's finance ministers. Later the same day, foreign and EU affairs ministers will hold a General Affairs Council to finalise preparations for the summit. The European Council itself will be split in two – a gathering of all 27 EU heads of state or government will be followed by a meeting of the 17 leaders of the eurozone countries.
The continuing negotiations in Brussels are complicated by the collapse of the government of Slovakia, which fell on Tuesday night (11 October) after the national parliament blocked changes intended to improve the flexibility of the EFSF. Slovakia, which is the only eurozone country yet to approve the measures, is now expected to hold a second vote within days. The opposition centre-left Smer party has agreed to support approval in return for early elections.
