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News Analysis: EU leaders say no to protectionism, pledge coordination on bailout

Updated:2009-03-02 09:11:02

The European Union summit on Sunday sought to dispel weeks of gloomy reports that the EU was sliding rudderless towards protectionism and division in the face of the mounting economic crisis.

The 27 European Union leaders issued a statement roundly rejecting protectionism as a response to the crisis and insisted that those member nations worst affected by the recession would not be left in the lurch.

They threw out a Hungarian appeal for an aid package specially tailored for eastern Europe, but said new members in the east would be held on a case-by-case basis.

French calls for an EU wide auto-industry bailout also found little support, but leaders backed coordinated national support for beleaguered carmakers.

The leaders also agreed on the need to improve regulation of the financial markets to prevent any repeat of last year's financial meltdown, called for common rules to deal with the banking sector's "toxic" assets, and stressed that the current wave of government spending to stimulate the economy should be only a temporary glitch in nations' drive for balanced budgets.

 "We should now be able to move forward with a restructuring of the whole banking sector," said Czech Prime Minister Mirek Topolanek, who chaired the three-hour meeting.

Hungarian Prime Minister Ferenc Gyurcsny's dire warnings that the EU risked being divided by an economic "Iron Curtain" unless there was a major support package for eastern Europe fell on deaf ears.

Even Hungary's neighbors among the EU's new member states shied away from call for a 190 billion euros fund to support eastern European nations hit by the crisis. Many are fearful of being lumped together with Hungary and Latvia, who approached the global crisis in a particularly vulnerable situation on account of a big budget deficit, in the first case, and macro-economic imbalances, in the case of Latvia. Both were forced to seek billions in emergency aid from the EU and International Monetary Fund.

"I don't think there is a real need for some sort of specific aid or support to central or eastern European countries," said Estonian Prime Minister Andrus Ansip.

"Those countries they are all so are very different. In some euro-zone member states their difficulties are much bigger than the so-called new member states," he told reporters at the summit.

The ten eastern European nations who joined the EU since 2004 had been booming but the economic crisis has hit them hard with currencies falling, growth contracting and unemployment rising. Western media have likened the situation to that ahead of Latin America's financial collapse in the 1990s, jokingly referring to Hungary as "Argentina on the Danube."

However, some in the region are faring better than struggling euro-zone nations such as Ireland, Greece or Portugal.

In the end the statement agreed by all 27 leaders said they would keep a close eye on the region and be ready to intervene on a case-by-case basis if any member falls towards bankruptcy. "It is perfectly clear that the European Union is not going to leave nobody in the lurch," Topolanek told a news conference.

"But this idea of dividing up into new member states and old member states, euro-zone and non-euro-zone, or north against south, was an idea that was completely rejected," he added.

Poland's call for nations to consider fast tracking eastern European nations into the euro to protect them against currency turbulence also found little support.

 Although Poland is one of those eastern nations that has coped with the crisis relatively well, the country has seen its currency the zloty fall by over 30 percent against the euro in recent weeks.

Slovenia and Slovakia have entered the euro-zone but the EU's other eastern members do not meet the criteria of low inflation, public debt and budget deficits and current euro-zone nations are in no mood to risk the currency's stability by weakening the entry requirements.

"I don't think we can change the accession criteria for the euro overnight. This is not feasible," said Luxembourg's Prime Minister Jean-Claude Juncker, who chairs the euro-group.

The summit's resolute rejection of protectionism may have rung hollow if Sarkozy had not agreed Friday to go back on a previous plan linking 6 billion euros in aid to its auto industry to commitments to favor factories based in France over those in other European nations -- a plan seen in eastern Europe as a direct threat to local jobs and a violation of EU free market rules.

However, pressure from the European Commission forced a climb down and on Friday. The EU's executive branch announced that Paris had made a commitment that the aid "will not contain any condition concerning either the location of their activities or the requirement to prioritize France-based suppliers."

In return, Commission President Jose Manuel Barroso said the EU regulators would clear the French aid plan. Nicolas Sarkozy's call for a EU-wide aid package for the auto industry were not taken up with the leaders, leaving up to national governments to come up with support plans for their industry that must be tailored to EU rules on fair competition. The EU is predicting a record 20 percent contraction in the industry as the recession cuts into auto sales with fears growing daily for the jobs of 12 million Europeans employed in the industry.

After coming up with a strong statement to reject protectionism and support greater banking supervision the Europeans will now aim to head into April's meeting of the G20 group of world economic powers in London with a united position.

British Prime Minister Gordon Brown who will host that meeting said Europe had to take the lead in securing a "global grand bargain" to rescue the world economy.

"Today was the start of a European consensus on all these major issues that are facing the world economy: yes to better regulation; yes to action on the shadow banking system and on hedge funds; no to protectionism; yes to fiscal and monetary stimulus," Brown told a news conference.

He said the EU leaders also supported the IMF's goal of doubling the money it has available to bail out countries in trouble to 500 billion U.S. dollars although he gave no indication that any offered to provide some of that emergency funding. Japan has pledged 100 billion dollars to boost the help the Washington-based IMF.

Brown said he would take the call for "bold global action" on the economy into his talks this week in Washington with new U.S. President Barack Obama.


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