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Monday 5 December 2016

Lenihan to assess mood as Germans up the ante

Berlin wants legal brake on borrowing and ejection mechanism for overspenders

Fionnan Sheahan and Sarah Collins in Brussels

Published 21/05/2010 | 05:00

Angela Merkel: 'At some point we [politicians] have to deliver'. Photo: Bloomberg News
Angela Merkel: 'At some point we [politicians] have to deliver'. Photo: Bloomberg News
Demonstrators shout slogans as they march in protest on May 20, 2010 in Athens. Photo: Getty Images
25,000 people marched through central Athens to Parliament to protest the austerity cuts brought in due to the crippling debt the country is under. Photo: Getty Images

Finance Minister Brian Lenihan will today assess the attitude of his EU counterparts to plans for greater scrutiny of budgets and sanctions for breaking the rules for euro members.

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Germany wants to see the suspension of EU voting rights for persistent overspenders and a way of eventually ejecting repeat offenders from the euro.

EU finance ministers are meeting to discuss the future of the single currency after a series of debt crises, most notably in Greece, called the euro's fate into question.

German Chancellor Angela Merkel's solo run clampdown on speculation in financial markets has merely added to the uncertainty over the future of the embattled currency.

Taoiseach Brian Cowen said last night the Government did not have a back-up plan in the currency crisis as he didn't believe the euro was in grave danger of collapse.

"We don't consider the disintegration of the euro as being in prospect," he said.

Despite Ms Merkel's moves, Mr Cowen said collective action was needed from European leaders to stabilise the euro.

"What we are talking about here is the stability of the euro, which is in all our interests," he said on RTE News.

Markets

The finance ministers will be aiming tonight to reassure the financial markets they have a plan of action to stabilise the currency.

The European Commission wants eurozone countries to peer review each others' budgets and economic policies, and is ready to impose sanctions on those that flout set spending and borrowing limits.

Government sources said Mr Lenihan would sound out the views of his counterparts on the proposal, but the Coalition did not believe the national parliament would be superseded by other finance ministers.

Convened by Herman Van Rompuy, the man who chairs the Council of 27 member states, the talks are to focus on last week's proposal by the European Commission, the bloc's executive arm, to overhaul how the European economy is run. Brussels wants to see a permanent bailout fund once the €750bn pot put together earlier this month expires in 2013.

But a German plan, seen by the Irish Independent, seeks to go a step further, pushing for the suspension of EU voting rights for persistent overspenders and a system for "orderly state insolvencies" that would, in practice, mean ejection from the single currency.

The suggestions come just two weeks after Berlin was persuaded to support a mammoth €110bn bailout of Greece.

As the EU's largest economy, Germany is essentially the paymaster in the bailout, handing over €4.4bn to Athens on Tuesday as part of a first tranche of loans worth a total of €20bn.

Berlin now wants to toughen oversight of government spending to ensure excessive debt doesn't further destabilise the euro, which fell to a four-year low against the dollar this week.

Stability

"The EU has reacted decisively to secure the stability of the euro by extending short-term assistance to Greece and adopting a decision to establish a European financial stabilisation mechanism," the German paper says.

"No crisis of the type experienced in Greece can be allowed to strike again in the monetary union -- in future, we must act first to prevent such an occurrence."

The draft suggests countries put in place a debt brake, similar to the curbs on spending enshrined in German and Swiss law, in order to discourage the kind of excessive borrowing that has seen Greece's debt spiral to €300bn, one-and-a-quarter times its annual economic output.

But Berlin wants to row back on Commission moves to subject draft national budgets to closer inspection by eurozone peers -- a plan that didn't sit well in Dublin -- saying the EU must "respect the budgetary responsibilities of national parliaments".

France is less keen on the more radical aspects of the German plan, most notably the treaty changes needed to introduce a bankruptcy clause and the kinds of sanctions Berlin wants to impose.

Irish Independent

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