Euro Finance Ministers Meet in BrusselsBy
Eurozone finance ministers will discuss the parlous state of their beleaguered economies at a meeting in Brussels on Monday (17 May), after the bloc's recently agreed trillion-dollar support package failed to prevent the euro's slide last week.
The currency continued to fall as Asian markets opened for a new week of business on Monday, hitting a fresh 18-month low against the dollar as investors continued to question the long-term health of the 16-country economy.
News that EU finance ministers a week ago had agreed a €750 billion support mechanism, together with the IMF, to help eurozone states struggling with their finances, was initially cheered by investors, causing the euro to climb above 1.30 dollars.
But the euphoria was short-lived, with the euro on Friday slumping to its lowest level since October 2008, at 1.2355 dollars, on fears that freshly announced deficit cutting measures in the southern economies of Spain and Portugal could hamper the region's consumer demand.
Reports in the Spanish press that French President Nicolas Sarkozy had threatened to leave the single currency during tough bail-out negotiations with Germany's Angela Merkel and other heads of state also contributed to market jitters.
The Elysee Palace was forced to deny the speculation after El Pais reported that Spanish premier Jose Luis Rodríguez Zapatero had mentioned Mr Sarkozy's negotiating stance in talks with other Spanish Socialist politicians.
This week's meetings come amid a climate of continued uncertainty. Initially hailed for its sheer size, senior European officials have since admitted that last week's support package will buy little more than temporary relief for the zone's struggling governments.
The rescue plan "has only bought time, nothing more," the European Central Bank's chief economist, Juergen Stark, told German daily Frankfurter Allgemeine Zeitung on Saturday.
German Chancellor Angela Merkel echoed the remarks, saying reform of the eurozone economies and better oversight were the only long-term solutions.
"We've done no more than buy time for ourselves to clear up the differences in competitiveness and in budget deficits of individual eurozone countries," she told an annual meeting of the German Federation of Trade Unions.
"If we simply ignore this problem we won't be able to calm down this situation," she added.
As debate on the need for reform hots up, the European Commission came forward last Wednesday with controversial plans to provide extra bite to the bloc's current budgetary rules, known as the Stability and Growth Pact.
The rules limit government deficits to three percent of GDP and debt levels to 60 percent of GDP, but both ceilings have been ignored by a majority of EU states in recent years.
But the commission proposals, set to be discussed by EU finance ministers this week, have already drawn criticism from politicians concerned that they would result in a watering down of the budget-agreeing role of national parliaments.
Germany is among those keen to see the bloc's rules on spending stepped up. Last year, the country enshrined in its constitution a law forbidding the federal government from running a deficit of more than 0.35 per cent of GDP by 2016.
German finance minister Wolfgang Schaeuble is reported to be working on plans that would see other eurozone countries adopt similar laws, and may present them to ministers as soon as this Monday, reports German weekly Der Spiegel.
Meanwhile, Spain, current holder of the EU's rotating six-month presidency, looks set to force a vote on plans to increase EU hedge fund and private equity regulation on Tuesday when all 27 finance ministers meet, despite stiff opposition from the new Conservative coalition government in London.
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