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June 26, 2022

Journey to safeguarding the euro has begun

As Romanians well put it, the night is a good adviser. This is something eurozone leaders have apparently understood well, as they continued their dialogue long after midnight on Thursday, after the other prime ministers had withdrawn, which allowed them to come to an agreement at last. After almost 20 summits that have been happening ever since the current crisis kicked, the agreement reached at 5 am on Friday is, undoubtedly, a success. The main objective which was stopping existing distrust on financial markets and stopping the fall of the single currency has been reached, at least for the time being. Stock markets reacted in quite an unexpected way after the summit, gaining between 2 and 6 per cent. There is no doubt about the fact that this is not necessarily an irreversible process, but it is an extraordinarily positive signal, beyond original expectations. The agreement is, of course, the fruit of a compromise that was obtained not without difficulty.

German Chancellor Angela Markel was not easy to convince to give in to the pressure put by Italy and Spain, permanently backed by the French President Francois Hollande. Not to mention the fact that each of the main protagonists gives its own interpretation to the measures having been adopted there. Italy, for instance, obtained the possibility of turning to the anti-spread mechanism without the obligation of submitting itself to the intervention of the Troika (European Union, European Central Bank and the International Monetary Fund), while Merkel insisted to note that the Commission and Central Bank’s control would be unavoidable. Anyway, Italy’s PM Mario Monti has already announced he had no intention to resort to the mechanism for financial stability for which he and Spanish PM Mariano Rajoy had been fighting with such determination during the Council meeting. He claims the important thing is that the mechanisms exist and speculators know they can be used at any time.   The first item the 27 EU member states agreed upon is the pact on economic growth and job creation. As indicated by the summit conclusions, EUR 120 bn, standing for 1 per cent of the European GDP, will be made available. A paid-in increase of EUR 10 billion in the capital of the EIB agreed on could support up to EUR 60 billion of additional financing. An issuance of EUR 4.5 bn worth of project bonds was also decided upon, to be used for investment in sectors that are crucial to further growth, spanning transport to energy, and so on. And, last, EUR 55 bn worth of European structural funds will be directed to support economic growth. The second item was with respect to financial stability. The 27 accepted a direct bank recapitalisation through the European Stability Mechanism (ESM), with the eurozone rescue fund being set to be up and running already mid-July. The objective is to help banks directly, by-passing national government intervention, in order to break the existing vicious circle that so far has only boosted sovereign debts. Point number three is about a medium term banking union. Until year’s end, a single supervision mechanism will be developed for all banks operating in the eurozone. The European Central Bank will be part of the system as required by Germany, in order to allow ESM to inject capital into banks in difficulty. The forth point is on political integration on a long term. The presidents of the European Council, European Commission, Eurogroup and European Central Bank are supposed to propose a roadmap by 2013, designed to achieve a political union so that the progressive elements of financial solidarity can be accompanied, as Germany wants, by ‘shots’ of federalism. During his meeting with the mass-media Friday noon, PM Victor Ponta said he was satisfied by the results of the first European summit he had attended in his new capacity, particularly by the adoption of the pact on economic growth in which, in his view, the new French president had played an especially important part. If it is capable of putting together projects, Romania will be able to start benefiting from ECB guarantees. The prime minister also noted that, based on the country assessment done by the president of the European Council, Romania was keeping all its ratings which can be but very good news. Victor Ponta appeared very optimistic about Romania joining the Schengen area this coming autumn. ‘Based on the talks I have had with the Dutch PM as well as with other heads of government, I can tell you that the solution put forward by the Polish president – that Romania should enter with its air and maritime borders this autumn and with the rest in March next year – is being increasingly endorsed.’ The prime minister also said, in conclusion, that this week, he would present to the Parliament assembled in extraordinarily sitting the conclusions of the European Council as well as the concrete tasks concerning the Government. ‘I will equally inform President Basescu on the measures having been adopted and talks that I held while in Brussels,’ the premier said.

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