EU leaders work to save Italy and Spain

EU leaders and their economic experts were working late into the night to come up with some confidence-building measures to help Spain and Italy, now in danger of being shut out of the markets.

A range of measures that could be implemented immediately were on the table, but the member states were deeply divided over all of them, with German chancellor Angela Merkel dismissing pleas from Rome and Madrid before the meeting.

Finland put a new idea into the mix with a proposal for covered bonds — where countries would put up assets such as government buildings, and allow the bailout fund, the ESM, to buy them if demand was weak.

Taoiseach Enda Kenny made it quite clear on his way into the meeting that Ireland has a keen interest in any measures to ease the burden on these countries that could benefit Ireland when it returns to the markets later this year.

He admitted finding a solution would not be easy, with Germany pushing strongly for Brussels to have greater control of national budgets in exchange for allowing EU bailout funds to buy member states’ bonds.

But in an optimistic note he added: “There have been a series of changes over the years. Europe as always is about patience and about timing... issues that seem to be rejected inevitably are left on the table and find a way of becoming a reality later.”

However, everyone realises the long-term solution — banking, fiscal and political union to be achieved over the next decade as laid out in the Van Rompuy report — will not secure the future of the euro.

The Finns, who are at one with the Dutch and the Germans in insisting on no leeway and strict austerity for troubled economies, have put forward a plan that worked for them in the 1990s.

Their spokesperson explained that to avoid going to the IMF in the 1990s, Finland offered the state mortgage company as collateral for bonds they sold on the market and which were bought up by big financial institutions.

They made massive structural changes, cutting spending and increasing taxes, and paid back the borrowings. “Without this money we would have run out. We guaranteed ourselves cheaper money and this was the key to survive,” he said.

Angela Merkel has described the Finns’ idea as “interesting”.

Italy and Spain make the case for the EFSF or the ESM funds, to buy their bonds, without conditions countries are now subject to. The Dutch, Finns, and Germans say no.

They would also like the preferential creditor status to be removed from borrowings from the ESM as they say it scares off private investors — but the Triple A countries again say no. If a considerable share of overall debt is owed to fellow eurozone states, as preferred creditors they would have to be paid back first.