BRUSSELS — The 17 finance ministers of the countries that use the euro converged on EU headquarters Tuesday in a desperate bid to save their currency — and to protect Europe, the United States, Asia and the rest of the global economy from a debt-induced financial tsunami.
The ministers were discussing ideas that would have been taboo only recently, before things got as bad as they are: countries ceding fiscal sovereignty to a central authority; some kind of elite group of euro nations that would guarantee one another’s loans — but require strong fiscal discipline from anyone wanting membership.
German Chancellor Angela Merkel reiterated her support for changes to Europe’s current treaties in order to create a fiscal union, that will include binding and enforceable commitments by all euro countries.
“Our priority is to have the whole of the eurozone to be placed on a stronger treaty basis,” Merkel said Tuesday in Berlin. “This is what we have devoted all of our efforts to; this is what I’m concentrating on in all of the talks with my counterparts.”
Merkel acknowledged that changing the treaties — usually a lengthy procedure — won’t be easy because not all of the European Unions 27 member states “are enthusiastic about it.” But she dismissed reports that the eurozone, or some nations within the bloc, might go ahead with a swifter treaty between governments.
Changes to existing eurozone rules are being touted as one way the eurozone can get out of its debt crisis, which has already forced bailouts of Greece, Ireland and Portugal, and is threatening to engulf bigger economies such as Italy, the eurozone’s third-largest. If Italy were to default on its debts of around €1.9 trillion ($2.5 trillion), the fallout could spell ruin for the euro project itself and send shockwaves throughout the global economy.
Even countries outside the eurozone were ratcheting up pressure on the ministers to find a solution. President Barack Obama, meeting with top EU officials on Monday, said a European failure to resolve its debt crisis would complicate his own efforts to create jobs in the U.S. And even Poland, historically wary of German dominance beyond its borders, appealed for help.
“I will probably be the first Polish foreign minister in history to say so, but here it is,” Radek Sikorski said in Berlin. “I fear German power less than I am beginning to fear German inactivity. You have become Europe’s indispensable nation.”
Illustating the urgency is the fact that Eurozone goverments have €638 billion in past debts coming due in 2012, of which 40 percent needs to be refinanced in the first four months of the year, according to a Barclays Capital estimate last week.
In a reminder of the urgency, Italy’s borrowing rates shot up Tuesday to rates above 7 percent, an unsustainable level on a par with rates that forced the others to seek bailouts. Markets rose generally for the second day on the expectation that the enormous pressures on European ministers would produce results.
At the top of Tuesday’s agenda is finding a means to more fully integrate the eurozone’s disparate nations — ranging from powerful Germany to tiny Malta — both politically and financially. And the ministers must do it fast, without the delays caused by democratic niceties like referendums that have led many EU reforms to take years to implement.
France’s finance minister, Francois Baroin, said Tuesday on France-Info radio that countries should integrate their budgets more closely and monitor one another’s spending.
“We have to modify eurozone governance,” Baroin said. “We definitely have to move toward more integrated budgetary consolidation, fiscal convergence with our neighbors.”
He said France and Germany — which have largely been calling the shots on efforts to overcome the crisis — will make proposals on how eurozone countries can monitor one another under such a new system.
The 17 ministers are expected to discuss jointly issuing so-called eurobonds — an all-for-one, one-for-all way of having the different countries guarantee one another’s debts. Right now each nation issues its own bonds, meaning that while Italy pays above 7 percent, Germany pays about 2 percent.
Having stronger countries like Germany stand behind the general European debt would lower Italy’s borrowing rates — and perhaps avoid a debt spiral that leads to a national bankruptcy. At the same time, it would raise Germany’s cost of borrowing, and that’s why Germany has been fiercely opposed to the eurobond proposal.
A French official said Tuesday that France may propose joint bonds among a subset of eurozone countries — those with “triple A” credit ratings — although Germany has said it opposes the idea. The French official said discussions about such so-called “elite bonds” is under discussion ahead of a summit of European Union heads of government in Brussels next week.
The official spoke on condition of anonymity because the sensitive, closed-door talks are still under way.
Proponents of elite bonds say the proceeds could be used to help the eurozone’s weaker countries deal with their debts, in return for strict conditions being imposed on their budgets. Critics argue that further fragmenting the eurozone into strong countries and weak countries would benefit no one.
On Monday, German Finance Minister Wolfgang Schaeuble dismissed reports that such bonds were under serious consideration.
The whole world is watching the developments. It’s not just a currency used by 332 million people that is at stake. As German Chancellor Angela Merkel and others have said, if the euro fails, so too does the 27-nation European Union, a rousing diplomatic success that united a continent ripped apart by two world wars.
“The biggest threat to the security and prosperity of Poland would be the collapse of the eurozone,” Poland’s Sikorski said Monday. “And I demand of Germany that, for your own sake and for ours, you help it survive and prosper. You know full well that nobody else can do it.”
If the euro fails, bank lending would freeze, stock markets would likely crash, and Europe’s economies would crater. Nations in the eurozone could see their economic output fall temporarily by as much as 50 percent, according to UBS forecasters. The financial and economic pain would spread west and east as the U.S. and Asia get ensnared in the credit freeze and their exports to Europe collapse.