Obama urges bolder EU action to fend off crisis
US President Barack Obama urged Europe yesterday (21 May) to strengthen its defences against financial market turmoil and recapitalise its banks as part of a four-pronged strategy for tackling the eurozone crisis.
European leaders have shown an increased resolve to address these issues, and there is a "consensus across the board" from France, Germany and other European countries, Obama said in remarks that suggest Europe is considering broadening its approach to resolving the eurozone's sovereign debt crisis.
"I do sense greater urgency now than perhaps existed two years ago or two and a half years ago," Obama said at a news conference in Chicago to wrap up four days of G8/NATO meetings.
World leaders are growing increasingly alarmed that the budget austerity approach favoured by Germany threatens to drive Greece from the eurozone and deepen Spain's bank problems, which could trigger a global financial crisis and tip the world back into recession.
For Obama, that could hurt his re-election in November.
Obama was joined by British and French officials over the weekend in calling for bolder action ahead of a crucial meeting of European Union leaders on Wednesday first called to discuss adding a growth plank to their fiscal strategy.
Obama's remarks point to a four-pronged approach that would encompass financial, economic, fiscal and monetary measures to address the eurozone crisis that he said were embraced by leaders who attended a G8 summit in Maryland and the NATO sessions in his home town of Chicago.
"We've got to put in place firewalls that ensure that countries outside of Greece that are doing the right thing aren't harmed just because markets are skittish and nervous," Obama said.
"We've got to make sure that banks are recapitalised in Europe so that investors have confidence. And we've got to make sure that there is a growth strategy to go alongside the need for fiscal discipline, as well as a monetary policy that is promoting the capacity of countries like a Spain or an Italy to put in place very tough targets and some very tough policies," Obama said.
These measures would offer the people in the affected countries the prospect for economic growth, jobs and growing incomes, he said.
'We still haven’t done enough'
British Prime Minister David Cameron sent a similarly urgent plea to European leaders for firm action, noting that 40% of British exports go to the eurozone.
"The truth is we still haven't done enough to decisively resolve the crisis," Cameron told a news conference during a NATO summit. He also said that bank recapitalisation, firewalls and a more active policy from the European Central Bank were needed, as well future plans for a common eurozone bond.
International bankers also are pressing European leaders in private meetings for quick action.
The Institute of International Finance (IIF), a global association of financial institutions, estimates total credit exposure to Greece at €360.7 billion of which €54.9 billion is to private sector investors, mostly in Germany and France. The private-sector exposure to Spain is much larger.
"There has to be concrete progress to stabilise market conditions," said Hung Tran, IIF deputy managing director.
At the least, the IIF said it would like to see direct injection of EU bailout funds into under-capitalised banks - an issue that could be discussed at the EU dinner this week.
Germany has resisted the idea, partly because it would require new rules for its bailout monies and make bank risk an EU responsibility while regulation remains primarily at the national level. But France and Italy are advocates.
Another issue that needs addressing is bank deposit insurance, Tran said. One proposal is for the EU to offer an umbrella backup to national deposit insurance schemes. This could prevent a bank run if a sovereign government runs into financing problems. But he said recapitalisation is a priority.
Spain reported last week that bad loans in its banks have risen to their highest in 18 years, underscoring problems the government faces as independent auditors begin looking at the depth of the problem in its banking sector. The size of bad loans has raised questions over how Spain could afford to help recapitalise its banks.
French President François Hollande has said he will push a proposal for mutualising European debt at the informal summit of EU leaders in Brussels this week. This would be one way to help out deeply indebted countries like Spain, Italy and Greece. But it increases pressure on German Chancellor Angela Merkel to drop her opposition to the idea.
Since the election of French President François Hollande on 6 May, German Chancellor Angela Merkel has come under pressure to relax the austerity measures which she has described as the remedy for the eurozone crisis.
Hollande made clear that he would stick to his campaign promise to renegotiate the EU fiscal pact and add growth components to it, setting himself on a collision course with Merkel, who has already made clear the treaty was not up for renegotiation.
But Merkel also sought to paper over differences by showing her receptiveness to a debate on growth, saying Franco-German unity will be key to reaching agreement at a European summit on 28-29 June dedicated to growth.
- 23 May: Extraordinary EU summit to discuss growth
- 28-29 June: EU summit in Brussels expected to finalise growth agenda