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EU leaders will take over the functions of ECOFIN

Published on , , Sofia

With more questions than answers ended the first informal European Council under the presidency of the new European president Herman van Rompuy. The summit of EU leaders was planned when Mr Van Rompuy was nominated for the post after the entering into force of the Lisbon Treaty on the 1st of December 2009. At yesterday's summit the new European economic strategy 2020 was supposed to be discussed because it will replace the current Lisbon Strategy for Growth and Jobs. Instead, the main topic at the meeting was the situation in the euro area and how to help Greece so that the country can stop dragging its partners, sharing the single currency, to the bottom.

Literally an hour after EU leaders gathered for the first time in the Solvay Library in Brussels, Herman van Rompuy and the president of the European Commission Jose Manuel Barroso appeared for the journalists and read a statement - half a page long. In it the leaders of the 16 member states of the Eurozone state that all euro area members must conduct sound national policies in line with the agreed rules. The document also reminds that they all have a shared responsibility for the economic and financial stability in the area.

"In this context, we fully support the efforts of the Greek government and their commitment to do whatever is necessary, including adopting additional measures to ensure that the ambitious targets set in the stability programme for 2010 and the following years are met". One of the major targets of the government of George Papandreou is to drop down the budget deficit by 4% this year and by 2012 to fit again in the Stability and Growth Pact criteria of 3%. So far the hole in the Greek budget is over 12% of GDP and the external indebtedness of the country surpasses the Greek GDP itself.

Separately, in their declaration the euro area leaders invite the ECOFIN (the EU finance ministers council) to adopt at its meeting on Monday recommendations to Greece based on the Commission's proposal and the additional measures Greece has announced. They also state their commitment to financial aid if this is necessary and if Greece would require such.

Later at a press conference Barroso and Van Rompuy had to defend themselves because of the numerous questions of why the EU leaders did not make any financial commitments to save Greece. Before the summit the German chancellor Angela Merkel said that her government was ready to buy some of the Greek debt.

Both the president of the Commission and of the Council firmly stated that financial support had not been agreed because Greece did not ask for any. They both confirmed several times that EU leaders and the European institutions trust the Greek government that it will deal with its commitments.

The problem with the financial assistance for Greece is enormous because it puts at stake the very ability of the Eurozone to function as an economic and currency entity. As the Financial Times correspondent in Brussels Tony Barber writes in a comment for the newspaper if the IMF were to step in with its medicine kit, many might conclude this was a strategic defeat of the highest order for Europe. It would indicate that the original design of monetary union was fundamentally flawed, exposing the desire of Europeans to have their cake and eat it - a common currency without a matching fiscal or political union.

The statement of Herman van Rompuy at the press conference in the end of the informal Council confirms to a large extent the hypothesis of Tony Barber: "The declaration is an expression of a clear political will, this is a political message which we wanted to send today. This message bears responsibility. The Greek government took its responsibility and we have also demonstrated will to help if necessary".

The other important news from the summit of the 27 is the decision the economic and financial policy to be removed from the prerogatives of the ECOFIN and, instead, the EU leaders to deal with it. To make this a working mechanism, Herman van Rompuy suggested the EU summits to become more regular and even, he said, on a monthly basis. However, it is possible that this proposal could create serious trouble because the decisions in the Council are no taken with a qualified majority (55% of the member states if they represent 65% of the population of EU), according to the Lisbon Treaty. So, if the heads of state and government are to argue on each issue which otherwise is easily passed in the corresponding councils, this might block major for the Union policies.

On Monday the ECOFIN will have its regular session which will prepare recommendations for Greece. Those recommendations will be a very important signal for Bulgaria too. In fact, the Bulgarian prime minister Boyko Borisov demonstrated yesterday that he is already aware that the euro area will not make any compromises with future candidates for membership. After his meeting with his Greek counterpart George Papandreou, he said that the problems with Greece had reduced the chances of Bulgaria to enter the Eurozone to almost none. The main reason for this is not Greece itself but the reasons why Greece is in its current condition and those reasons were formulated, to some extent involuntarily by the Bulgarian deputy prime minister and finance minister Simeon Dyankov in an interview for the Nova TV on Thursday morning:

"Firstly they just laughed (the euro area finance ministers with whom Dyankov is meeting since last week), then after they understood that we are serious started to quote external reasons. First it was Latvia and Estonia, now it is Greece. I told them: "You can in no way connect our nomination to anyone else. This is simply not fair and is not in the format". They accepted this. Now they say: "We understand that at the moment you have a very good financial policy. The question is whether you will have such in a year, two, three". And this is the hardest part to defend", Mr Dyankov said.

Further in the interview Mr Dyankov explained that in the end of the day nothing depended on him but on the premier Boyko Borisov which on Wednesday was proved again after the government again defied from its plans for a pension and healthcare reform. And a state whose economy is not operated by a competitive industry, competitive services and by a government, capable of doing hard but still not that painful reforms, cannot prove that it will be a reliable partner.

And when you are told from the outside that membership to the single European currency is generally a political question, they mean exactly this - whether they can count on the long-term policy of the governments and whether there is will in the rest of the actors in political space of a candidate country to continue this policy or to support it. And this is also a signal to the opposition in the country and to the civil sector.

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