David Cameron hails eurozone crisis 'progress'
Wednesday 20 June 2012
Prime Minister David Cameron yesterday hailed "important progress" at the G20 summit in Mexico towards a solution to the crisis in the eurozone.
Mr Cameron was speaking at the end of a summit in which the outlines of a £600 billion eurozone plan to shore up Spain and Italy appeared to be taking shape.
Chancellor George Osborne said that the eurozone nations appeared to be "inching towards" a wide-ranging scheme to deal with the problems of the single currency.
But he cautioned against expectations that any one summit could provide a solution to the crisis in the euro area, saying that proposals could emerge when the single currency states meet in Rome later in the week or Brussels at the end of the month.
Mr Cameron said that the eurozone countries at the G20 in Los Cabos agreed "to make all necessary policy measures to safeguard the integrity and stability of the eurozone, including breaking the link between the sovereign debt problems and bank instability.
"They committed to take steps towards fiscal and economic integration including through a banking union.
"These are significant agreements. Now the eurozone countries need to get on and implement them."
He added: "What I have sensed at this summit is that there is a fresh impetus with the eurozone members in terms of using all the mechanisms, institutions and firepower that they have to stand up and support their currency."
It is understood that the scheme under consideration would involve using two eurozone bailout funds - the European Financial Stability Facility and the European Stability Mechanism - to buy up government bonds from countries like Spain and Italy which are facing punitive rates of interest.
The funds, together worth around £600 billion, have previously been used to assist smaller EU economies like Greece. An intervention in the bond market of the kind apparently being considered would be designed to reduce yields, which have soared above 7% in Spain.
Deploying them on this scale would represent a major shift in stance from German Chancellor Angela Merkel, who left Los Cabos yesterday without comment.
A massive bond buy-up on this scale would be expected to drive down the yields on Spanish or Italian bonds, making interest rates lower and relieving the pressure on national governments.
Britain is not part of either the EFSF or ESM, so UK taxpayers' money would not be involved.
The communique issued at the end of the G20 summit was expected to speak of moves to establish a "more integrated financial architecture" for the eurozone.
Drafts said eurozone members would "foster intra-euro area adjustment through structural reforms to strengthen competitiveness in deficit countries and to promote demand and growth in surplus countries".
Mr Cameron said that the summit had also successfully halted a slide towards protectionism and made "good progress" on trade imbalances.
And he said that the US and Europe had reached a "groundbreaking" political commitment to establish a trade agreement by the end of 2014, which he said could make a "huge difference" to jobs and growth in the UK.
French President Francois Hollande said that Italy had put forward the idea of using the eurozone's new permanent bailout fund to buy the debt of member states experiencing difficulties with high borrowing costs.
He confirmed the proposal would be explored further at the Rome meeting on Friday between him, Ms Merkel, Spain's Mariano Rajoy and Italy's Mario Monti.
"Italy has launched an idea which is worth looking at," said Mr Hollande.
"The idea is the following: that virtuous countries - like Italy, which has taken steps to address its public accounts, can finance their debt at interest rates that are not in line with those countries that are seen to be not making efforts," Mr Hollande said.
"We are looking for ways to use the ESM for this. At the moment it is just an idea, not a decision. It is part of the discussion."
US President Barack Obama said it was clear that eurozone leaders now had a sense of urgency about what needed to be done to "break the fever" of the debt crisis.
"None of them are going to be a silver bullet that solves this thing entirely... in the next week or two weeks or two months, but each step points to the fact that Europe is moving towards further integration rather than break-up," Mr Obama said as the summit ended.
International Monetary Fund chief Christine Lagarde said "the seeds of a pan-European recovery plan were planted" at Los Cabos.
"It doesn't matter if it takes a long time, it has got to be done well," she added.
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