Merkel, Juncker Divisions Threaten EU Meeting

Friendly pre-meeting talk belies ongoing disputes; no new action anticipated

After some very public sparring matches among European Union (EU) leaders over the best ways to tackle the ongoing debt crisis, those leaders claimed to have resolved their disagreements on Thursday prior to their debt crisis summit.

Angela Merkel, chancellor of Germany, has said that she and Jean-Claude Juncker, chair of the euro zone’s finance ministers, had a discussion that settled their disagreement on the issue of euro bonds.

Merkel is opposed, while Juncker has suggested that such common-issue bonds might help to ward off investor unease. According to a Reuters report, Merkel said in an interview published on Thursday by Germany’s Bild newspaper, “Jean-Claude Juncker and I had a long telephone conversation and cleared up the issue a while ago. With so much at stake, the emotions sometimes get involved.”

However, while Juncker confirmed that he and Merkel had buried their differences, he also said he might bring up the bond proposal during the meeting anyway. Regretting “dissonances in public,” he nonetheless told the French daily Liberation that the bonds would be useful in enforcing financial discipline, adding, “I know very well that if there is a debate [on euro bonds], there cannot be a decision one way or the other at today's European summit.”

European Commission (EC) President Jose Manuel Barroso is expected to tell the 27 members that they must take new measures to ward off financial catastrophe. Advance notes indicated that he plans to say: “The current sovereign crisis has now become systemic in nature, and is driven not only by budgetary fundamentals but also by the mispricing of credit risk by investors and short-term herding behavior in the markets.”

Barroso has said the crisis requires “comprehensive, swift and consistent” response, while IMF chief Dominique Strauss-Kahn has criticized the state-by-state method the EU has employed thus far to combat the debt crisis.

That said, and with the need to restore confidence obvious to all, it is doubtful that members will take any action other than approving the change to the EU treaty that Germany insisted on. The change is preparatory to the creation of a permanent rescue facility that in 2013 will take the place of the mechanism currently in place.

Other than that, it is expected that leaders will discuss the possibility of enlarging the temporary rescue facility. Another method under consideration is an increase in flexibility for the fund so that it can act before a country is in dire straits.

Hoping to avoid pressure from the EU and investors to accept a bailout of its own, Portugal on Wednesday announced it had decided on additional ways to boost growth and cut red tape.

Read about efforts to stabilize the euro with changes to the EU treaty on www.AdvisorOne.com.

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