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Netherlands and Finland may stunt EU Summit progress

European leaders may not be as cohesive after the summit as analysts might like to see.

Finland pm euro summit Enlarge
Finnish Prime Minister Jyrki Katainen arrives for a meeting of European Union leaders in Brussels on June 28, 2012. EU leaders debate 'a big leap forward' to strengthen their union and save the euro at a two-day summit starting Thursday, but divisions may scuttle efforts to shore up the single currency. (Thierry Charlier /AFP/Getty Images)

Fears about the imminent collapse of the European financial system appeared to have subsided somewhat since last week's EU summit, where leaders announced new steps to bolster bank and sovereign funding. 

But there could be a big kink in this plan.

One of the still-vague plans from the summit reaffirms efforts to bring down sovereign borrowing costs by allowing the European Financial Stability Facility (Europe's current bailout fund) and the European Stability Mechanism (the bailout fund expected to go into effect later this month) to purchase sovereign bonds at the whim of the European Central Bank. (For the full details, see a statement EU leaders published at the summit).

But now Finland's government has vowed to block the ESM from actually buying bonds in the secondary market, and it looks like the Netherlands might be backing this charge. 

From Reuters today:

Finland will block the euro zone's permanent bailout fund from buying government bonds in the open market, the Finnish government said on Monday, while The Netherlands also indicated opposition to the bond-buying idea.

Comments suggesting a rough time ahead for the idea followed euro zone leaders' agreement at a summit last week to take steps to shore up their monetary union and bring down Spanish and Italian borrowing costs.

There are three reasons to question the severity of this threat:

  • The European Commission said today that the most important of last week's plans—a plan to directly recapitalize European banks using the bailout funds amid deeper banking union—should not require new treaty approvals.

  • Further, Finland has already ratified the ESM treaty, so it might no longer have control over some level of bond-buying measures.

  • Finally, the ECB seems to have decided that secondary market purchases of sovereign bonds are not the most efficient way to go about stemming the crisis.

That said, Finland's rejection of this detail from the EU summit suggests that European leaders are not as cohesive after the summit as analysts might like to see. Such a lack of unanimity could undermine efforts to stem investor fear moving forward.

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Original Source URL: 
http://www.businessinsider.com/netherlands-finland-kill-eu-summit-progress-2012-7

http://www.globalpost.com/dispatch/news/regions/europe/120702/netherlands-and-finland-stunt-eu-summit