Germany rejects EU draft proposals

Germany rejects EU draft proposals

Germany rejected some measures in draft conclusions from a summit of EU heads on Thursday, including giving the European Stability Mechanism (ESM) a banking licence and issuing common eurozone debt, a senior German source said.

The conclusions seen by Reuters earlier said the permanent ESM rescue fund would get a banking licence and run alongside the EFSF, bolstering its ability to tackle the eurozone debt crisis.

“We are rejecting this in negotiations,� the source said, speaking on condition of anonymity.

In the draft, EU leaders said they were committed to a new “fiscal compact� for the eurozone, including much tighter budget deficit rules and debt issuance procedures, draft conclusions from a summit of EU heads of state showed on Thursday.

The draft also showed that the eurozone plans to bring forward the introduction of its permanent bailout fund, the European Stability Mechanism, to July 2012, and give the facility a banking licence.

Such a move would give the ESM access to European Central Bank liquidity, bolstering its ability to tackle the eurozone debt crisis. The draft conclusions also said the ESM should have the ability to directly recapitalise banks.

“The European Council is determined to preserve the integrity of the EU and the coherence between the euro area and the EU as a whole,� the draft conclusions read.

“With this overriding objective in mind, and fully determined to overcome together the current difficulties, we agreed today on a new “fiscal compact� and on significantly stronger coordination of economic policies in areas of common interest.

“General government budgets shall in principle be balanced. Member states may incur deficits only to take into account the budgetary impact of the economic cycle or in case of exceptional economic circumstances,� it said, adding that the structural deficit limit would be 0.5% of GDP.

On the ESM, which the draft said would have a capacity of 500 billion euros, the leaders agreed:

“Our common objective is for the ESM to enter into force in July 2012… The ESM will have the possibility to directly recapitalize banking institutions and to have itself the necessary features of a credit institution.�

It said the existing bailout fund, the EFSF, would continue to operate until mid-2013.

© Thomson Reuters 2011

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