President Obama pressed European leaders on Monday to take bolder steps to resolve the region’s financial crisis, with a December summit now targeted as a possible turning point in the two-year-old saga.
With the euro region veering toward a new recession or, worse, a potential crackup, Obama said the U.S. economy is likely to continue to struggle until that major world trading bloc is healthy and growing.
“If Europe is contracting, or if Europe is having difficulties, then it’s much more difficult for us to create good jobs here at home,” the president said after a long-planned summit with two of the European leaders most involved in crafting the area’s crisis plans.
European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso trekked to Washington as the crisis over the euro zone reached a phase that Van Rompuy characterized as “dangerous.”
“It has become a crisis of the euro zone as a whole,” he said before meeting with Obama.
Moody’s Investors Services warned Monday that the bond ratings for all 17 euro nations are at risk; forecasts for the euro area economy were slashed by the Organization for Economic Cooperation and Development; and Italy and Belgium continued paying high interest rates in Monday bond sales. Larger sales this week may show euro nations at continued risk of being abandoned by international investors.
Van Rompuy said he thought the intensifying problems around the euro region would force countries into a closer fiscal union – a major step, he argued, toward resolving the region’s problems in a durable way.
The idea is that surrendering some power over government spending to a central authority would prevent nations from accumulating the type of debt that derailed Greece and led to a broader crisis of confidence over whether the euro region can survive.
U.S. and European stock markets jumped on news of such a plan, to be discussed at the December summit. Major European exchanges increased as much as 5 percent, while U.S. markets rose 2.5 percent to 3.5 percent.
The lack of a central fiscal authority has been cited as one of the key problems with the euro area. Stricter spending guidelines, officials say, could help the region tap other resources as well: German officials may be more willing to help their neighbors if they knew national budgets were to be vetted by an outside authority, and the European Central Bank might be comfortable doing more to prop up weaker nations if there were a clear plan to control government spending and make their economies more competitive.
At the White House session and in the earlier interview, Van Rompuy said the December summit could be a breakthrough if it signals that Europe is moving toward closer fiscal cooperation. He said he plans to outline “binding rules to ensure strong fiscal and economic discipline in all countries.”
Although deficit and debt rules were included in the treaty that created the euro, they were routinely ignored in practice — including by Germany.
Van Rompuy said that the upcoming proposals would be substantially stricter, and that they would include a major transfer of budgetary power from national parliaments to European officials who would have the power to reject national spending plans.
Proposals to change the European Union’s basic treaty along those lines will be discussed at the December summit. Other ideas include the use of commonly issued debt, or euro bonds, that would rely on the strength of triple-A rated nations such as Germany and France to raise money to help weaker countries as they bring their budgets into line.
Although treaty change in Europe is a complex process, Van Rompuy said the summit will prove important “if we can send the right signals” to investors and the European Central Bank that governments are ready to move toward more centralized fiscal management.
Van Rompuy, a central figure in negotiating Europe’s several unsuccessful efforts at crisis response, said he thought that the severity of the problems had primed countries to act. Although it may be hard to get the entire 27-nation membership of the European Union to change its treaty in a timely fashion, he said the 17-nation euro group could find a way to move forward.
“All this was unthinkable a year ago,” he said.