Pressure on UK to find shelter in the euro

EC looks for coordinated action to tackle crisis as Barroso warns states cannot face challenge alone
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The Independent Online

The President of the European Commission has hinted again that the pound should now join the eurozone. Jose Manuel Barroso said that "even the biggest states can't face these challenges alone", and that he would seek "more coordinated EU action" to deal with the financial crisis.

He voiced his belief that more majority voting would help EU decision-making. Despite sterling's slide and the well-known problems in the UK's banking system, Mr Barroso seemed as keen as ever to hint at his enthusiasm to see the pound in the European single currency.

In December Mr Barroso embarrassed Gordon Brown when he claimed: "Some British politicians have already told me, 'If we had the euro, we would have been better off'."

Yesterday he did not take up the opportunity to repeat earlier remarks that the UK was "closer than ever" to joining the euro and that the "people who matter" in British politics were contemplating giving up the pound; but the hints were plain.

The European Commission also wants to acquire "oversight" over national financial regulators, such as the UK's Financial Services Authority. Mr Barroso said that "national supervision systems did not work – that is obvious".

Individual European governments soon broke ranks during the pressure of the banking crisis last autumn, with nations such as Ireland and Germany acting unilaterally to guarantee banks and depositors in emergency conditions, creating chaos as investors moved money around European institutions offering the most cast-iron guarantees.

Mr Barroso said he wanted to see a "more coordinated approach at the European level" and that work was in progress to pull together the various national regulators. Troubled European banks with extensive retail cross-border activities, such as Fortis's branches in the Netherlands and Belgium, caused serve strains last year.

However, despite these reservations, Mr Barroso and the President of the European Central Bank (ECB), Jean-Claude Trichet, expressed confidence in the other arrangements surrounding the euro. Mr Barroso also stressed that the flexibility in the Stability and Growth Pact, agreed under the Maastricht Treaty, would be enough to contain the current strains, and that the EU is not thinking of changing the Maastricht criteria.

M. Trichet dismissed concerns about strains in the eurozone arising from soaring spreads between relatively well-regarded German government debt, or Bunds, and euro-denominated debt issued by other members states, notably Greece and Italy.

The credit ratings agencies have also downgraded or revised to the downside their view of Spanish, Irish and Portuguese government debt in recent weeks. The more apocalyptic observers imagine that some or all of these nations might be driven out of the eurozone. The legendary investor George Soros said on Wednesday that he considered it to be a "constitutionally incomplete" currency and many others have called for a single European Treasury to work alongside the European Central Bank.

M. Trichet said: "I do not see the euro at stake, certainly not the solidity of the euro area. What is at stake is the judgement of the market at the moment on the sustainability of fiscal polices. We have always said we should not have a single message for states and that they should use the room for manoeuvre" in the EU's Stability and Growth Pact, which limits government debt and borrowings. M. Trichet added that despite threats there would be no "bailout" and that "various executive branches", ie national governments such as Greece, were "getting the message".

Perhaps not, though: Italy's Finance minister, Giulio Tremonti, during the same Davos session on "the Economic Governance of Europe", replied that taking private as well as public debt into account made Italy look much better. He suggested the issuance of government debt by the European Union, rather than individual states: "Now my feeling – I am speaking of a political issue not an economic issue – is... now we need a union bond."

On the day the Bank of England announced its asset purchase scheme, M. Trichet also indicated that further cuts in rates and "non-standard" tactics are ruled in by the ECB.

"I said we could engage in non-standard actions, and indeed we have already done so, notably on refinancing... We are at 2 per cent and I didn't exclude we could go below 2 per cent. What I have said is we have a very important rendezvous in March," M. Trichet added.

M. Trichet also tackled the issue of collapsing bank shares, and the signal from the markets that the banks should be augmenting their capital positions rather than, as most governments and the EU would like, running them down. "It is not our position, and we will do all that we can to pass the message that we are not in agreement with that," he said. "That would augment the pro-cyclicality of the present period."

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