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December 16, 2010

EU Opts for Permanent Mechanism to Help Troubled Members

Reaction was muted Friday after the European Union decided on a permanent rescue mechanism for debt strapped members. Moody's rating agency downgraded Ireland's credit rating.

The two-day European Union summit ended Friday with very few surprises. As expected, leaders from the 27-member bloc decided to establish a permanent funding mechanism to help ailing European economies as of 2013.  That means slightly changing the EU's governing Lisbon Treaty. But they left the details - including the amount of the new fund - to be hashed out in the coming months.

At a press conference Friday, Jose Manuel Barroso, president of the European Commission - the EU's executive arm - outlined other areas of agreement, including tougher rules for the banking sector and for bringing state debts under control.

"We will do whatever is required to support the euro area's financial stability. And that was a solemn declaration - but not just a solemn declaration, but a declaration with concrete commitment," he said.

German Chancellor Angela Merkel, who balked at a proposal to tackle the crisis by establishing common European bonds, expressed satisfaction at the results.

Like Mr. Barroso, Ms. Merkel said European leaders were committed to safeguarding the euro, which has been shaken by the financial problems of several countries using it, including Greece and Ireland.

But analyst Cinzia Alcidi, of the Brussels-based Center for European Policy Studies, expressed disappointment that European leaders did not take bolder steps at their end-of-year summit.

"I think we really need to address the root of the problem. The main problem is an excess of debt and basically in some cases it's the country, in other cases it's the banking system that's not able to face the high level of debt," said Alcidi.

Underscoring continued concern about Europe's financial health, Moody's Investor Service slashed Ireland's credit rating on Friday and warned of further downgrades. Moody's has also warned Spain of a possible downgrade.