The European Commission president has set out a roadmap aimed at stopping the rot in the eurozone and putting it back in the black.
Germany and France, last Sunday vowed to take all the necessary measures to end the current crisis.
The five-point plan will be put for approval before EU leaders at their summit in Brussels on October 23.
Commission President Jose Manuel Barroso’s plan includes a major recapitalisation of European banks exposed to dodgy sovereign debt, the establishment of a permanent bailout fund (European Stability Mechanism) a year earlier than planned and more powers to Brussels to monitor national budgets.
Under the plan there will be no new financial commitments for Malta, as the island’s banks are considered to be among the most solvent in the EU and are not exposed to Greek debt. Banking recapitalisation will involve the already existing European Financial Stability Mechanism (EFSF), to which Malta has already committed guarantees of about €400 million.
On the other hand, bringing the ESM forward will mean Malta having to start paying its €53 million share of the capital a year earlier, although this is not expected to make a significant difference in the long run as the share is intended to be paid over a five-year period.
Addressing MEPs at a plenary session of the European Parliament in Brussels yesterday, President Barroso made it clear there was no option other than “decisive action” to stop the crisis that has befallen the eurozone, which threatens the world economy.
“This roadmap charts Europe’s way out of the economic crisis. Reactive and piecemeal responses to different aspects of the crisis are no longer sufficient. We now need to get ahead of the curve,” Mr Barroso said, echoing what economists, major financial institutions and worried countries such as the US and China have now been urging for some time.
“Confidence can be restored through an immediate deployment of all the elements needed to solve the crisis. Only in this way will we be able to convince our citizens, our global partners and the markets that we have the solutions that measure up to the challenges all economies are facing.”
Mr Barroso’s plan comes a few days after high-level meetings took place between the two powerhouses of the eurozone, Germany and France, which last Sunday vowed to take all the necessary measures to end the current crisis.
Although no one in the eurozone is admitting that the way forward will also include a “managed default” of some of Greece’s debt, the recommended recapitalisation of exposed banks is another signal in that this may be inevitable.
The plan also comes hours after the Slovak Parliament failed to ratify a deal on strengthening the eurozone’s temporary bailout fund.
The rejection had been expected so there was no fuss made by EU leaders yesterday after they were again assured by Slovakia’s opposition parties that another vote in a few days’ time would push through the ratification. The casualty in Slovakia was the government, which was toppled since the EFSF resolution was tied to a vote of confidence.
The Barroso plan
Decisive action on Greece. This is aimed at removing all doubts about Greece’s economic sustainability. It will include disbursement of the sixth tranche of loans to Greece, a second adjustment programme, based on adequate financing through public sector and private sector involvement, and continued support from the Commission Task Force.
Completing Euro area intervention. This includes making operational the decisions agreed to in July, maximising the effectiveness of the EFSF, accelerating the launch of the European Stability Mechanism to mid-2012 and the provision of sufficient liquidity by the European Central Bank.
A fully coordinated approach to strengthening Europe’s banks. This should be based on a reassessment by the supervising authorities using a temporary significantly higher capital ratio of highest quality capital after accounting for exposure. Banks should first use private sources of capital, with national governments providing support if necessary. If this support is not available, recapitalisation should be funded via a loan from the EFSF. Pending this recapitalisation, these banks would be prevented by national supervisors from distributing dividends or bonuses.
Speeding up stability and growth-enhancing policies. This includes rapid implementation of existing commitments on services, energy and free trade agreements; swift adoption of pending proposals to enhance growth such as tax initiatives, fast-tracking forthcoming proposals, especially those that extend the benefits of the Single Market, and targeted investment at the European Union level, including through project bonds.
Building robust and integrated economic governance for the future, based on the existing treaties (Article 136), reinforcing the Community approach. The proposals seek to integrate the European Stability Mechanism and the Stability and Growth Pact into the same fully integrated governance system to increase coherence and efficiency. This would provide new powers for the Commission and EU Council to intervene in the preparation of national budgets and monitor their execution. Enhanced cooperation should be envisaged in all cases where otherwise decisive action would be held back.