Barroso admits latest eurozone deal is failing and calls for action on fund
Published 05/08/2011 | 05:00
A deal forged last month to contain the eurozone debt crisis is not working, the EU has admitted, and may need to be revisited as trouble engulfs Italy and Spain.
In a scathing missive to leaders of the 17 single currency countries made public yesterday, Commission chief Jose Manuel Barroso said the July 21 accord -- which includes a second €109bn bailout for Greece and bolstered powers for the eurozone's rescue fund -- was marked by "undisciplined communication, complexity and incompleteness".
"It is clear that we are no longer managing a crisis just in the euro-area periphery," Mr Barroso wrote. "The 21st of July bold decisions on the Greek package and the increased flexibility of the [fund] are not having their intended effect on the markets."
EU leaders agreed to expand the powers of the €440bn European financial stability facility (EFSF), allowing it to buy ailing states' bonds in secondary markets and offer countries precautionary credit lines and loans for floundering banks.
The deal comes just months after leaders bumped up its lending power from €250bn and agreed to let it intervene in primary bond markets.
However, the fund won't be able to exert any of these powers until they are ratified by all 17 eurozone governments and parliaments, which could take weeks.
Mr Barroso urged leaders to wave the changes through and consider a "rapid reassessment" of the powers bestowed on the fund, which has already been tapped by Ireland and Portugal, and is set to be further depleted as part of the second Greek bailout.
"Euro area financial stability must be safeguarded, with all EU institutions playing their part with the full backing of euro area member states," he said.
It is Mr Barroso's second rallying cry in as many days, as bond markets hone in on the eurozone's third and fourth-largest economies, which are beset by high borrowing costs, sluggish growth and political instability.
A Commission spokeswoman said a new round of changes could mean an increase in the fund's size, which will not sit well with Germany, the zone's most reluctant paymaster.