Merkel Rejects Bailout for Eastern Europe

From The Wall Street Journal:

MARCH 1, 2009, 10:54 A.M. ET
Merkel Rejects Calls for EU Bailout of Eastern Europe

Germany rejected appeals Sunday for a single multibillion-euro bailout of eastern Europe, even after Hungary begged EU leaders not to let a new “Iron Curtain” divide the continent into rich and poor.

The swift, strong comments by German Chancellor Angela Merkel dampened hopes that leaders at Sunday’s European Union summit could forge a unified stance to tackle the worsening economic crisis.

As Europe’s largest economy, Germany has been under rising pressure to take the lead in rescuing eastern EU members, but Ms. Merkel insisted that a one-size-fits-all bailout was unwise.

“The situation is very different” in Europe’s economies, Ms. Merkel said as she arrived for the summit. “We cannot compare Slovakia nor Slovenia with Hungary,” she said.

Hungarian Prime Minister Ferenc Gyurcsany, saying the credit crunch was hitting the eastern members hardest, had called for an EU fund of up to 190 billion euro ($241 billion) to help restore trust and solvency in those nations.

“We should not allow that a new Iron Curtain should be set up and divide Europe,” Mr. Gyurcsany told reporters. “In the beginning of the ’90s we reunified Europe, now the challenge is whether we will be able to reunify Europe financially.”

Ms. Merkel said that Germany and the EU stand ready to help countries who need help on a case-by-case basis.

“We have shown in particular with Hungary that we help countries in need. And we will do so further, particularly through the international institutions,” she said.

EU nations are all grappling with a worsening recession, compounded by a severe credit crunch that has left many EU countries looking ever more inward to protect jobs and companies from international competition. Those policies are now undermining the open market cornerstone on which the EU is founded.

Ahead of the summit, the leaders of nine countries–Poland, Hungary, Slovakia, the Czech Republic, Bulgaria, Romania and the three Baltic states–forged a common stand to pressure richer members in the 27-nation bloc to back up vague pledges of support with action.

But Polish Finance Minister Jacek Rostowski said eastern European members shouldn’t be lumped together and treated as if they all faced the same, severe problems. He counted Poland among those countries that don’t need funding from the EU or its individual members.

“Our position is that we must differentiate between countries that are in difficulties and those that are not,” Mr. Rostowski told Poland’s TVN24 television station.

“We are in favor of supporting countries in need, like Hungary,” he said. “But there are a number of countries in central and eastern Europe that are not in need, such as Poland, the Czech Republic, and Slovakia. And there are countries in the euro zone that need help.”

Hungary, Poland and the Baltic countries of Estonia, Latvia and Lithuania also want the EU to fast-track their bids to join the euro-currency, which could offer them a stable financial anchor. Latvia’s government has already collapsed amid the economic fallout.

Other EU members, like Sweden, want to coordinate a Europe-wide bailout plan for car producers.

Prime Minister Mirek Topolanek of the Czech Republic, which holds the EU presidency, has called on his counterparts to act together.

A draft summit conclusion centered a commitment to “make the maximum possible use” of the EU’s cherished free market “as the engine for recovery.”

“We do not want a Europe divided along a North-South or an East-West line, pursuing a beggar-thy-neighbour policy is unacceptable,” Mr. Topolanek said.

The crisis has sorely tested solidarity among EU nations.

The Czech Republic has accused France of trying to protect its local car plants at the expense of foreign subsidiaries, while Germany rejected earlier calls to help bail out economies in Ireland, Greece and Portugal.

Sunday’s talks are meant to restore a unified purpose and help prepare for the April 2 Group of 20 nations summit in London.

Once-booming east European economies have been hit hard by the economic downturn. As cheap credit dried up their export markets shrank, causing eastern currencies to sink and triggering more financial turmoil.

Mr. Gyurcsany said eastern EU countries could need up to 300 billion euros, or 30% of the region’s gross domestic production this year.

He warned that failure to offer bigger bailouts “could lead to massive contractions” in their economies and lead to “large-scale defaults” that would affect Europe as a whole. It could also trigger political unrest and immigration pressures as jobless rates soar, he said.
The Associated Press and Dow Jones Newswires contributed to this article.

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