Barroso: Full economic union vital to save euro

FULL economic union is essential for the survival of the euro, European Commission president Jose Manuel Barroso said in his annual state of the union address that concentrated on resolving the economic crisis.

He laid the blame for the current debacle firmly with the eurozone governments and their failure to agree a clear strategy and exercise leadership, and depending on inter-governmentalism rather than the EU’s institutions.

“We are now facing the greatest challenge our union has ever seen,” he said. “If we do not integrate further, we risk breaking up.” He added the crisis was financial, economic and social, as well as one of confidence.

He said monetary union needed to be completed with an economic union.

“It was an illusion to think that we could have a common currency and a single market with national approaches to economic and budgetary policy. Let’s avoid another illusion that we can have a common currency and a single market with an intergovernmental approach.”

Instead this should be done through the Commission rather than setting up more institutions he said. Recently Germany and France have pushed for Council President Herman Van Rompuy to take over as permanent eurozone head.

Mr Barroso urged those countries that are pro-European to come together in a clear message to Britain in particular that is increasingly advocating a free market-only union, and said the problems in Europe were because of narrow national interests.

Hours before the German parliament votes on extending the powers of the European Financial Stability Facility that would see it lend for banks and governments under pressure from the markets, he proposed what he called Stability Bonds.

Euro bonds have been a step too far for Germany, but Mr Barroso said that there were a variety of options to allow the EU to raise money on the markets for distribution to the eurozone states without have to change the existing treaties. But he appeared to acknowledge that these would not become a reality for some time, saying they would be “seen as a natural” step, once steps to have greater oversight and control of member states budgets are finalised.

He also touched on the proposal, pushed some weeks ago by the US, that the Facility be used to leverage greater sums of money so that it could afford to fund big economies like Italy if the need arose.

In the meantime, he urged the European Central Bank to continue to provide liquidity to cash-strapped governments and their banks, an issue that has led to the resignation of two German ECB board members, as they oppose bond-buying programmes.

As the troika mission return to Greece, expected to sign off on the €8bn tranche of their bailout the country needs, Mr Barroso said that Greece would not be forced out of the euro area. He said the Commission was considering a wider guarantee to help banks to lend to the real economy in Greece.

The Parliament voted through the so-called “six-pack” — legislation that will strengthen the surveillance by the EU over member states’ budgets, capping deficits and debt, and spending in specific areas including education and poverty reduction.