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EU summit over, eurozone ills are not

- Associated Press - Thursday, May 24, 2012

BRUSSELS — European Union leaders concluded their latest summit early Thursday with few ways to cure the continent's festering financial crisis, even as the potential for a messy Greek exit from the euro appears to be rising. Some leaders stressed the importance of planning for just such an event but offered no measures that might help Greece avoid it.

Also left unresolved was what Europe should do to spark economic growth and restore the confidence of investors, who have driven some countries' borrowing costs to unsustainable levels. The fiscal austerity agenda that Germany has pushed as the solution to Europe's problem of rising government debt has been met with skepticism in other euro countries.

The leaders of the 27 EU countries agreed to give institutions such as the European Investment Bank the task of drawing up proposals for growth in time for another summit in June. But there was discord over more aggressive actions promoted by some leaders heading into the summit, such as issuing bonds jointly as a way of reducing borrowing costs for heavily indebted nations in the eurozone, which is made up of 17 countries.

The perception that European leaders lack the political will to grapple with the Continent's financial and economic problems has put markets on edge for weeks. Recession is spreading. Banks are under pressure. The biggest fear is that if Greece cannot be saved, other larger economies such as Spain or Portugal might face the same fate.

The eurozone countries "have to consider all kinds of events," Luxembourg Prime Minister Jean-Claude Juncker told reporters after the summit, but he insisted "the working assumption" was that Greece would remain among the euro users. Leaders gathered in Brussels recognized that Greece had endured significant hardships and promised to release development funds to spur growth.

But the statement from Mr. Juncker, who also chairs meetings of eurozone finance ministers, was a frank admission that Greece could wind up abandoning the euro. The country's fringe political parties, which are threatening to renege on commitments made to secure bailout loans, saw their popularity surge in recent elections. No party has been able to form a government, and Greeks will vote again June 17.

Many analysts have said that Greece, already in its fifth year of recession, has no hope of recovery if it sticks to the spending cuts and tax hikes it accepted to secure bailout loans.

"We want Greece to remain in the euro area," German Chancellor Angela Merkel said after the meeting. "We expect that they will stick to the commitments that they have entered into."

Markets had expected the latest EU summit to disappoint and it did. Europe's stock markets had fallen heavily during trading this week and the euro dipped to a nearly two-year low against the dollar.

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