European Commission President Says He Is Very Pleased That All 27 Member States Have Agreed To Fund A Permanent Stability Program
MAX FOSTER, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: A deal is done. Europe plans to rewrite the rules to save the euro. Finally some good news for Madoff's victims. As a $7-billion promise makes U.S. corporate history. And walking the business tightrope. We'll tell you what to watch out for in 2011. I'm Max Foster in for Richard Quest. This is QUEST MEANS BUSINESS. Hello to you. Europe's leaders are hailing their new permanent crisis fund saying it will safeguard the euro. But even as the ink dries on the agreement we are seeing fresh signs of distress in the marketplace with Ireland taking another knock from the credit ratings agencies. A long term solution, this maybe, but in the short-term the question is whether Europe is doing enough to stem the crisis. The new permanent crisis mechanism means struggling nations will be able to get help after 2013. That date was when the original temporary trillion-dollar bailout fund was due to expire. Europe's leaders have agreed to tweak the Lisbon treaty. That is no easy feat, requiring the agreement of all 27 members. Leaders did not add any more money to the pot for now. The financial safety net for Europe is still worth around a trillion dollars. And some heads of government want to make sure the EU itself is extra careful with its money. The leaders of France, Germany and the U.K. want to put future EU spending plans on ice. They are pushing for a virtual freeze of the EU budget until 2020. Earlier I spoke to Jose Manuel Barroso, he is president of the European Commission and I asked him whether he was pleased about the new crisis mechanism.</s>JOSE MANUEL BARROSO, PRESIDENT, EUROPEAN COMMISSION: It was a very important decision. For the first time now there is a possibility for a permanent mechanism for the stability of the euro area. And not only we have agreed on the main features of this permanent mechanism for financial stability, we also have agreed on the necessary limited revision of the treaty to allow for that mechanism.</s>FOSTER: As I understand it, the wording that will go into the treaty includes this sentence: "The granting of any required financial assistance under the mechanism will be made subject to strict conditionality." What does that conditionality refer to?</s>BARROSO: It means that a country may receive some support, financial support, in the form of loans or guarantees, but for that it has to respect some very clear commitments in terms of budgetary policy or some kind of reforms. Of course, this has to be decided on a case by case basis.</s>FOSTER: And the treaty is being adjusted. That means that national governments will have to approve it still, won't it? So we are some way off this becoming law?</s>BARROSO: All the governments have already approved it, now it is important to have the ratification through the parliaments, according to the national procedures. But the 27 governments have accepted this kind of very limited, surgical reform of the treaty to make it possible to have this kind of permanent mechanism for the stability, financial stability in the euro area.</s>FOSTER: Separately leaders have also agreed to a budget freeze, haven't they?</s>BARROSO: To a budget freeze? No, there is no decision at all about that. That was just speculation and some rumors. But in fact the decision regarding the future budget is a decision inviting the commission to present its proposals. And we are going to come with our proposals in June of 2011. So we are preparing proposals and at the end of those proposals there will be afterward a discussion.</s>FOSTER: You know the leaders of France, Britain, and Germany have agreed between themselves to have effectively a real term freeze, though, between 2014 and 2020. And they'll decide this, won't they?</s>BARROSO: I don't know what our decision is, in fact, the decisions of the European Union are taken by the 27 countries based on the proposals of the commission. So, we cannot yet say there is a decision before the proposal is made. They may have some ideas. Of course, it is important that each country has its own idea. But in fact, negotiations have not yet started (ph), because we need the proposal to start negotiations.</s>FOSTER: OK, so what would you make of a freeze? Because there are certain countries like Poland that wouldn't approve of it at all, would they?</s>BARROSO: You know, it think it is not wise to start discussing the budget in terms of freeze or increase, or decrease. It is not wise. But we have to see in a realistic and rational and reasonable manner is where the European funding brings added value. When we can be increasing our competitiveness, making our economy more fit for this globalization age, and what is the contribution a European budget can make to it. So this is the matters where we are now focusing our attention. Afterwards we have to discuss what is the profit level of expenditure or investment. Having of course, to take in consideration the current financial constraints and the economic circumstances.</s>FOSTER: Is it helpful that the three most powerful leaders in the area are making decisions on their own?</s>BARROSO: Of course, it is not helpful if this was the case. I don't know exactly what is the-these decisions that you are referring to. But if this is the case it is decisions that only bind the countries that are responsible for that. We are 27 countries in the European Union. All have the same dignity. All have the same</s>FOSTER: The president of the European Commission today. Well, European leaders are on their way home from Brussels now, fully agreed on at least a financial safety net, in principle. Our Fred Pleitgen is in snowy Brussels tonight. I asked him if what we have seen over the past 24 hours really is European unity at its best.</s>FREDERIK PLEITGEN, CNN INTERNATIONAL CORRESPONDENT: Well, it is probably not a true picture. I think in the whole scheme of things, if you look at this EU summit, there is really one country that go most of what it wanted to get and that was Germany, which, of course, right now is also in the strongest position within the European Union. The Germans said from the beginning they wanted several things from this, what they call permanent crisis mechanism. They said they wanted it to be a matter of last resort. That this would only be tapped into if in fact the whole of the Euro Zone stability were called into question or was in danger. That is certainly something that they got. They said they wanted massive strings attached to any bailout money that would flow to any of the member states. That is another thing that the Germans got. The Germans were the first ones to float the idea of changing the Lisbon treaty to do all that. They got what they wanted in that respect as well. So certainly this does reflect, in many ways, the strength of the German economy within the Euro Zone and also, of course, the strength of Germany's financial discipline that it has been having in the past couple of years. So certainly you can say that while there was some descent that Germany probably did win out on most of the things that it wanted to do, Max.</s>FOSTER: And Germany needed that role or that sort of PR for its own political reasons, didn't it? So Merkel could go back to the Germans and say, actually, you know, it is not so bad. We got what we wanted so we can stay in the euro and it is a good thing to be there.</s>PLEITGEN: Yes, you know, she was in a very difficult role. Because on the one hand there are a lot of Germans right now who are becoming more and more euro skeptical I would say. There are a lot of Germans that believe their country is paying way too much into the European Union and is not getting enough out of the European Union. On the other hand, of course, you do also have the opposition here in Germany, which has said that Angela Merkel is, quote, "un-European". That she is not doing enough to prop up Europe. The Germans have for a very long time and have always really seen the European Union as much as a political entity as they have an economic entity. So certainly this is something that they also take very seriously from a political standpoint, and of course, from the standpoint of keeping the peace in Europe. So she has been taking a lot of shots from either side. And she reflected that throughout the day in her press conference, when she said that, yes, on the one hand there is no way that we are going to let the euro slide. But on the other hand we are going to make it as tough as possible to actually tap into that bailout money to make sure that nations that are in trouble implement their own austerity measures before they try and get money from this European bailout fund.</s>ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): The size of the fund has to be large enough to make it credible. And the same criteria will apply to the permanent crisis mechanism as with all other measures. We will do whatever it takes to ensure the stability of the euro. It is very hard to say today how large the crisis fund will have to be, but it must be sufficient.</s>FOSTER: And in terms of the mechanism and how it works, not complete clarity there, yet. But do you think this is enough to convince investors that actually the European Union is there to bailout countries if there are problems, even if there isn't a bailout fund, as we have got right now?</s>PLEITGEN: You know the interesting thing about what was said after the summit, and was said by all of these leaders, is that they never put a number on how big they actually want this fund to be, when it comes into effect. Of course, we know that right now the temporary fund for bailing out countries is about 750 billion euros, or $1.1 trillion, which in part is EU money. On the other part, of course, is IMF money. The Germans have always been very reluctant to put any money on top of that. So far no one has been willing to come out and say this is how big this fund is going to be. All they keep saying is we want this fund to be big enough to actually be credible. However, we do also have to say that it is still two years before this is going to get implemented. This is not going to start until the year 2013, so we'll see how things evolve until then. But yes, you are absolutely right, so far they have still bee quite vague on how they want this mechanism to actually look like. And therefore it is doubtful whether or not this is going to calm down the skeptics that, of course, are out there, Max.</s>FOSTER: Fred, who was in Berlin, in fact, not Brussels. Now it will be a long time before Irish eyes are smile again. The IMF and Moody's cast further doubt on Ireland's debt stricken economy and they question its ability to pay that last month's massive bailout; more on that after the break.