PARIS – With fears of a global financial crisis harming states in Central and Eastern Europe, and doing potential damage to Europe’s successful single currency, European Union heads of state agreed to help emerging states at an emergency summit in Brussels.
The assistance will not resemble a US-style major bailout or recovery fund, but will take a yet-to-be-determined form on a “case by case” basis, as states need it, according to Jose Manuel Barroso, president of the European Commission.
The meeting, which was called in part to affirm “solidarity” among wealthy or older EU states and less affluent former communist states, comes in the wake of crises in states like Latvia and Hungary, which have needed billions in help in recent months.
The financial crisis has brought recession, hit European banks hard, and spawned fears of division, favoritism, and protectionism not only between eastern and western European nations, but between northern and southern states – as well as between the 16 states in the eurozone and the 11 that are not. As the Monitor reported last week, what started as an ugly economic crisis across Europe – not only in the East – is now shaping into a crisis over the EU’s identity and character, say political economists.
Some of the divisions in the meeting to affirm solidarity were evident as Hungary proposed a European fund of some $228 billion for recovery – only to be rebuffed not only by Germany, but by the Poles and the Czech Republic. Hungarian Prime Minister Ferenc Gyurcsany responded to the rejection with a warning in the Brussels meeting of a “new Iron Curtain” dividing Europe.
Following the meeting, stocks across Eastern Europe dropped to their lowest levels in 5 1/2 years and Hungary’s forint plunged. David Lubin, chief emerging-market economist at Citigroup Inc. in London, told Bloomberg that, “The failure of yesterday’s summit to provide any fresh thinking about Eastern Europe’s crisis means that investors are faced this week with the prospect of ‘more of the same.’ ”
Last Friday, a joint statement by the World Bank, the European Investment Bank, and the European Bank of Reconstruction and Development put € 24.5 billion ($31 billion) on the table for troubled EU states over the next two years.
On Monday in Prague, Joaquin Almunia, European commissioner for economic and monetary affairs, stated that, “We are being realistic. We know that this may not be enough, and we may have to do more. The situation will require strict monitoring and closer coordination among … private investors, financial supervisors, and governments…”
Tensions have built in the EU between proponents for preventive measures and those that favor bailouts in the midst of collapse. EU rules prohibit states from bailing each other out, but Czech Prime Minister Mirek Topolanek, speaking as the current EU president, said that no state would be allowed to fail, though he failed to offer clear specifics.
Mr. Alumina said that “Support for non-euro area countries with severe financing problems has been increased from €12 billion [$15 billion] at the end of 2008 to €25 billion [$32 billion] today. Out of this 25 billion, €9.3 billion [$12 billion] has been used to help meet the financing needs of Latvia and Hungary.”
Pierre Rousselin, a geopolitical analyst, writing in the Paris Le Figaro on Monday, says that vast new differences between European states changes old demarcations: “...between Latvia and Hungary, for whom there is clearly an urgent case, and on the other hand Poland, the Czech Republic, Slovenia, and Slovakia, which are less stricken even than Greece or Ireland, the chasm between old and new Europe is meaningless. The Czech Republic was right to resist Hungarian demands.”
This fall, as banks in Europe threatened to go belly up, the EU put up some €300 billion ($380 billion) in bank credit – and wealthy states like France have Germany have announced substantial recovery packages.