As had happened in past weeks, German Chancellor Angela Merkel was pressured by other eurozone leaders into agreeing to bail out collapsing members of the bloc.
Most leaders wanted clear indications in favour of a permanent rescue mechanism designed to prevent a new Greek crisis from happening. Germany opposed this, as regional elections are looming and voters are expected to be against such a move.
Debate on the details of the mechanism went on all night. Eventually leaders were forced to postpone a definitive agreement on this issue until a new extraordinary summit at economy minister level, to take place tomorrow in Brussels.
A common declaration adopted early today (8 May) reads: "Taking into account the exceptional circumstances, the European Commission will propose a European stabilisation mechanism to preserve financial stability in Europe".
"It will be submitted for decision to an extraordinary Ecofin meeting that the Spanish Presidency will convene this Sunday, May 9th," the paper adds.
The European Central Bank is supposed to play a role in this mechanism, once it has been definitively agreed. The details must still be clarified.
Italian Prime Minister Silvio Berlusconi did not rule out banks buying bonds from failing states to prevent squabbling about interest rates. This possibility has been branded 'the nuclear option' in diplomatic circles, because it is considered the most radical of those on the table.
Leader endorse Franco-German letter
Along the lines of the Franco-German letter circulated before the summit (EurActiv 07/05/10), eurozone leaders agreed to "broaden and strengthen economic surveillance and policy coordination in the euro area".
This stronger control should include "close attention to debt levels and competitiveness developments". In other words, member states will be watched out not only for their deficits but also for their debt, which according to the Stability Pact should not exceed 60% of GDP.
Financial markets
They agreed to crack down on credit rating agencies and derivatives, reiterating previous messages which were not followed by proper action in the aftermath of the subprime crisis.
A telephone conversation between German Chancellor Angela Merkel and US President Barack Obama in yesterday afternoon (7 May) confirmed the urgency of the situation and the importance of a global approach.
"We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community," Obama said after the conversation.
In the coming weeks, negotiations will get more intense ahead of the G20 summit in Toronto on 17-18 June. The European Commission is expected to present a communication in three weeks' time setting out the EU common ground ahead of the summit, and focusing on "consistent progress regarding financial regulatory reform".
