The summit was convened to assess the political landscape following the election of French President François Hollande and to pave the way for an official Council meeting at the end of June.
Uncontroversial issues on boosting trade and youth employment by implementing existing EU policies will make way for a no-holds-barred debate as leaders take up Council President Herman Van Rompuy’s offer for a summit discussion with “no taboos”.
Amongst controversial issues set for an airing are Eurobonds, bank recapitalisation, the possible use of the European Stability Mechanism to prop up struggling banks and a financial transaction tax.
Leaders will also discuss the precarious situation in Greece as leaders wait nervously for the outcome of a decisive election next month in the debt-stricken nation.
Growth proposals likely to meet approval across all 27 member states include so-called project bonds, a form of co-financing for earmarked infrastructure projects.
A Commission proposal to pilot the project bonds – in the transport, energy and communications infrastructure sectors – was agreed yesterday (22 May) in concert with the European Parliament and Council.
Eurobonds are the bugbear
But Eurobonds – mutualised debt instruments that would see Germany and other financially stronger eurozone countries guarantee the debt of weaker states – remain controversial.
Last week, Hollande told a meeting of G8 leaders in the US that he would promote Eurobonds at the EU summit, saying he had the support of Italian Prime Minister Mario Monti, Spanish Prime Minister Mariano Rajoy and the European Commission.
The Commission has long been a supporter of euro area bonds, producing a feasibility study on them late last year before the initiative was pushed to the background.
Germany remained unprepared to consider the issue on the eve of the summit, claiming such bonds were no answer to the eurozone’s problems, and that fiscal convergence must be strengthened before they can be meaningfully discussed.
German Chancellor Angela Merkel has also refused to budge on her insistence that any growth measures could not come via more deficit spending.
Austria, Finland and the Netherlands are in the German camp on the bond issue.
Meanwhile, Britain is sceptical of a plan to boost paid-in capital of the European Investment Bank by €10 billion – an idea which most member states back – doubting Commission figures claiming such a sum could be leveraged to €180 billion of investment.
The UK is also likely to find itself fighting the proposal for a financial transaction tax, which has crept back on the EU agenda following Hollande’s election on 6 May.
‘Grexit’ will not be discussed
The Eurobonds are likely to be the most controversial issue discussed. “If the Greeks exit the eurozone, there will need to be some clear effort in place to buffer the zone against contagion, such as Eurobonds,” said one EU diplomat.
Leaders meeting today will avoid discussion of a Greek exit – Grexit, in Brussels jargon – with Greece facing elections on 17 June that could hasten its departure from the eurozone if voters back anti-bailout parties. However, they are likely to make a common statement on the situation in Greece.
There are some signs that Berlin may be paving the way for a change of tone on Eurobonds. Speaking in Berlin on 21 May, Germany’s European Central Bank executive board member, Jörg Asmussen, said the eurozone should be backed by “a fiscal union and banking union as well as a democratic legitimised political union”.
Stronger central European fiscal control has long been cited by Merkel as a condition for Eurobonds to be considered, but such controls are strongly resisted in Paris, where they are seen as a threat to national sovereignty.
Whatever is agreed, or disagreed, the outlines of a bargain – seeing France cede sovereignty in exchange for Germany agreeing to guarantee the debt of the eurozone – are on the table.