“Epic Battle” At EU Summit As Growth Pact Held Up By Italy, Spain Demands

Last Updated: 29, June 2012

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Both Italy and Spain are refusing to back a 120 billion euro ($149 billion) European Union growth package, wrote numerous reports emanating from the EU Summit in Brussels on Thursday, with the two countries threatening to block “everything” unless they received immediate eurozone aid to bring down their borrowing costs.

According to Reuters, neither Mario Monti nor Mariano Rajoy, the Prime Ministers of Italy and Spain respectively, signed off on the EU agreement on Thursday, as they sought reassurances from German Chancellor Angela Merkel to underwrite Italian and Spanish bonds.

The two leaders also insisted at the summit that any deal on a growth package had to be tied to immediate measures to bring down soaring borrowing costs, putting them directly at odds with Merkel, who had insisted before the summit that there were no short-term fixes on the table.

A member of the Italian delegation told AFP that Madrid and Rome had “no reservations on the substance (of the pact), but want this to be part of a larger solution.”

[quote]”We are in favour of the growth pact, we are not blocking it, but there must also be urgent measures,” added a Spanish diplomat to the news agency.[/quote]

Nevertheless there appears to be a split growing within the EU, with some leaders taking on the side of the Italians and Spanish, while others backed Merkel.

French President Francois Hollande for instance seems to be firmly behind Italy and Spain.

“I have come here to get very rapid solutions to support countries in the greatest difficulty on the markets even though they have made considerable efforts to restore their public finances,” said Hollande at the summit, as cited by The Telegraph.

[quote]“Everyone must make an effort so that markets are convinced that the measures are effective, and they must be,” Hollande added later to a news conference. “We all need Italy and Spain to have lower interest rates today and for Spain’s banks to be recapitalised because that will bring relief for the euro zone.”[/quote]

On the other hand, Mark Rutte, the Dutch prime minister, expressed his support for Germany and said that the only way Spain and Italy could emerge from the crisis was “to bite the bullet” and to “reform their labour markets, to make savings and reforms”.

One EU diplomat, who spoke on condition of anonymity, told AFP that the “Italians and the Spanish had taken the pact hostage.”

“If we want an agreement on short-term measures before the markets open, we need a eurogroup tonight, otherwise the markets will wake up without a growth pact,” this diplomat said.

[quote]Another EU official told Reuters that “there’s an epic battle going on between those who seek immediate and unconditional solidarity and those who seek to fundamentally change the way European economies are run and put Europe on a course of stability, discipline and growth.”[/quote]

According to reports, discussions at the EU summit went into the early hours of Friday morning, with leaders only breaking for dinner at 11pm.

Hours later than planned, European Council President Herman Van Rompuy came out to a press conference to announce a deal in principle on measures to stimulate infrastructure investment and attempted to play down reports of a row.

“There’s no blockage, we keep on working and we move on,” he said.

Van Rompuy however acknowledged that “there are two countries who are very keen to make sure that there is an agreement both on the long term measures and on the short term measures but I wouldn’t say there was any blockage.”

[quote]”The key element is that we boost the financing of the economy by mobilising around 120 billion euros for immediate growth measures,” he said.[/quote]

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