EU attempts new measures to reassure markets

European Union finance ministers on
Sunday discussed radically expanding the bloc’s powers to raise revenue to stop
troubled members from going bankrupt — the Union’s second attempt in a week to
stabilise plummeting markets that threaten the future of the euro.

The emergency meeting, attended by
finance ministers from all 27 EU states, was called to reach agreement on a
so-called European stabilisation mechanism ahead of the opening of the
financial markets on Monday.

The Spanish finance minister, Elena
Salgado, said European Union officials would “do whatever is necessary” to
restore stability in the euro zone.

“We are going to defend the euro,”
Ms. Salgado told reporters as she arrived for the meeting.

The European Commission, the
Union’s executive body, kept details of the stabilisation mechanism
confidential. But the mechanism could provide a way for member states and
possibly the European Central Bank to guarantee loans extended to the
commission, which would then re-loan the money to states in need, like Greece.

At issue in the discussions is
whether such loans would be guaranteed by individual member states or
guaranteed by the entire European Union — which would make liable those EU
countries that do not use the euro, including Britain.

EU leaders including President
Nicolas Sarkozy of France have said the mechanism should be ready by Monday
morning, if needed, to quell further market turmoil in Greece and in other
euro-zone countries with struggling economies, like Spain and Portugal.

The finance ministers gathered in
Brussels were, in effect, seeking to change the way the European Union operates
in a single weekend.

Stronger economic integration
strikes at the heart of issues of national sovereignty that have left the
European Union politically fragmented on the 65th anniversary of the end of the
Second World War in Europe — the cataclysm that led to the creation of
pan-European institutions that were meant to ensure peace and prosperity in the

The unprecedented series of EU
meetings was spurred by new signs that Greece might default on its debt, and as
concerns deepened about the economic stability of Spain and Portugal. A summit
of EU leaders held just a week ago failed to calm roiling markets, which
plunged late last week.

EU leaders face a rising tide of
criticism for failing to promptly put in place an effective joint response to
Greece’s debt crisis, making the cost of the bailout even steeper. Over the
weekend, France continued to lobby hard for the new stabilisation mechanism,
and for a fresh show of European unity before the markets’ opening on Monday.

“Our attitude is: enough is enough.
We have to stop this vicious spiral,” said a senior official, who declined to
be identified because the talks were ongoing.

A number of British and German
commentators have suggested that the French are seizing an opportunity to
expand the power of the European Union at a time when both Britain and Germany
are occupied by domestic politics.

While the immediate causes for
worry are Greece’s ballooning budget deficit and the risk that other fragile
economies like Spain and Portugal might also teeter, the turmoil has exposed
deeper fears that government borrowing in bigger nations like Britain, Germany
and even the United States is unsustainable.

Efforts to address the crisis took
a major leap forward when Chancellor Angela Merkel of Germany and President
Nicolas Sarkozy wrote a joint letter to Brussels on Thursday calling for stricter
sanctions against member states that break the bloc’s rules designed to protect
the stability of the euro.

The letter asked how the European
Union could avoid another crisis and “how to preserve the strength, the
stability and unity of the Euro area,” but it contained few concrete proposals.

Mrs. Merkel then spoke Friday to
President Barack Obama in a sign of how seriously the United States is taking
efforts by EU leaders to address the crisis.

But how much finance ministers
could achieve on Sunday remained murky.

A statement by heads of state early
Saturday was couched in language designed to leave little doubt that finance
ministers would approve the creation of a stabilization mechanism and put it
into action as soon as Sunday evening or Monday morning, if needed.

But it remained unclear Sunday
whether Britain and other EU members that have not adopted the euro would agree
to pledge their assets to support the currency nonetheless.

Arriving in Brussels, Alistair
Darling, the British chancellor of the Exchequer, said it was important to
stabilise the financial markets, but he said his country would not provide
support for the euro.

It also remained unclear whether
German authorities would ultimately back away from a stabilizsation mechanism
over fears that it might violate existing EU treaties.

Mrs. Merkel only reluctantly agreed
to support the stabilization mechanism on Friday after German officials clashed
with their French counterparts over the plan.

There is some precedent for a new
loan mechanism: The European Commission already has already borrowed from the
financial markets and re-loaned the money to help countries including Hungary
and Latvia cope with difficulties in their balances of payments. Those loans
are guaranteed by the countries receiving them.

European Union diplomats said
Sunday afternoon that Britain would be prepared to agree to expand that lending
programme to 110 billion euro, from the current level of 50 billion eiro.

At his news
conference late Friday, Mr. Sarkozy insisted that none of the measures that had
been discussed that day would require a change in current EU treaties.