Eurozone leaders agree on euro coordination

Eurozone leaders made modest progress Friday on bolstering the single currency's defences by agreeing on greater coordination of economic policy to remedy a persistent debt crisis.

"We have an agreement on the pact for the euro," said European Union President Herman Van Rompuy, who was tasked with piloting through proposals put to a summit to bolster the eurozone's defences against a persistent and damaging debt crisis.

His Twitter site was later amended to say it was "an agreement in principle" with "other elements of the package" still being discussed.

The special summit of the 17 euro nations was called with Portugal coming under intense pressure from markets as the government in Lisbon seeks to raise fresh cash to stabilise its public finances.

All aspects of economic policy are covered in the pact with the aim of ensuring greater policy coordination so that the eurozone economies prove more competitive and better able to manage their public finances.

If that is achieved, then the debt crisis can be controlled and resolved, avoiding the need for further costly bailouts after Greece and Ireland had to be rescued last year.

A diplomatic source said separately that Van Rompuy's announcement will need to be endorsed at a March 24-25 summit of all 27 EU states.

Eurozone leaders were meeting after an full EU summit earlier in the day on the Libyan crisis which is roiling the markets, making life even more difficult for the weaker eurozone states struggling to put their finances in order.

The problem was starkly highlighted when Portugal, widely tipped to be the next eurozone member to need a bailout after Greece and Ireland, adopted more austerity measures to ensure its public deficit meets EU norms by 2012.

Savage spending cuts have already proved unpopular and EU Economic and Monetary Affairs Commissioner Olli Rehn called Lisbon's latest efforts "significant new commitments" to ensure stability in the Portuguese economy.

"I welcome and support this package of far-reaching and concrete measures," he said, aimed at getting Portugal's public deficit down to 4.6 percent this year and to 3.0 percent -- the EU limit -- in 2012.

Rehn said the new package should now be matched by commitments to bolster the bloc's stability mechanisms.

The 17 heads of state or government of the eurozone nations were joined by the head of the European Central Bank Jean-Claude Trichet to run over the 'Pact for the Euro.'

The document, seen by AFP, sets out four areas for closer cooperation -- competitiveness, employment, sustainable public finances and reinforcing financial stability.

Individual states will be responsible for specific measures -- an important caveat for smaller members jealous of their independence -- but they are all supposed to work towards these same goals.

The objective is "to achieve a new quality of economic policy coordination in the euro area, improve competitiveness, thereby leading to a higher degree of convergence," the document states.

The logic is that if eurozone states have the same goals and obey the same rules, then the huge debt burdens and public deficits straining public finances and threatening the euro will ultimately be brought under control.

Germany, Europe's powerhouse economy, insists that the euro's current problems stem largely from member states not following the rules on limiting their debt and deficits.

Against this backdrop, eurozone leaders will also be looking at how they can bolster the debt rescue system set up after the Greek bailout in May.

The three-year European Financial Stability Facility is worth notionally 440 billion euros ($610 billion) but in practice, it can only provide half that amount. Making its full capacity available is still an issue.

Its 2013 replacement, the permanent European Stability Mechanism, will have double the firepower but there are difficult debates over its ultimate size and powers, especially whether it will be able to buy up eurozone government debt.

AFP

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