Europes leaders finally rose to the challenge on Friday,backing bold ideas to help weak countries and frail banks ravaged by a debt crisis that has crippled economic growth and threatened the global financial system.
For the first time in 19 summits since the start of the crisis,the EU leaders declared they would:
One,centralise regulation of European banks and,if necessary,bail them out directly,instead of funneling loans through governments having too much debt.
Three,stop mandating painful budget cuts to every country in need of emergency financial aid.
Four,tie their budgets,currency and governments more tightly.
The decisions made at the EU summit in Brussels wont end the crisis that has gripped Europe for nearly three years.
Plenty of questions remain about how the bank bailouts would work,whether theres enough money committed to rescue banks and governments and whether impoverished,indebted Greece will be forced out of the 17-nation euro club.
But for EU leaders who have consistently underwhelmed their exasperated publics and nervous financial markets,Fridays efforts marked a breakthrough.
The prime minister of Ireland one of the five euro zone countries that have required emergency funds said the plans marked a seismic shift in European policy. British Prime Minister David Cameron said that for the first time in some time we have actually seen steps … to get ahead of the game.
At first it looked like the summit would produce little more than a modest plan to stimulate growth in Europe. But Italy and Spain,whose borrowing costs have soared to dangerous levels,refused to sign off on the $150 billion spending plan unless something was done to ease their financial burdens.
After an all-night standoff,the leaders agreed to expand the use of Europes bailout funds and do so without imposing strict austerity measures on countries that are meeting existing pledges to control spending.
The bailout money could be used to buy bonds to drive down a countrys borrowing costs. Or it could be loaned directly to troubled banks,which EU leaders said would help break the vicious cycle in which weak banks and weak governments threaten to drag each other down.
The EU also called for a single regulator probably the European Central Bank to oversee Europes banks. Currently,banks are regulated by their national governments and some countries have been slow to recognise loan problems and shut down their worst banks.
As part of a broad banking union,the new regulator will likely get power to close failing banks if their national regulators wont do it.
The summit deal leaves out crucial details of just how any bank bailouts would work.
Would bank creditors have to take a loss on their investments,or would taxpayers foot the whole bill? The deal didnt specify.