BRUSSELS (MNI) – European leaders have agreed on the ‘euro plus’
economic governance reform package and finalized details for the
permanent E700 billion Eurozone bailout fund, European Council President
Herman Van Rompuy said in a late night press conference following the
first day of the European Union leaders’ summit here.

The summit — which seeks to conclude with a comprehensive package
to provide a credible safety mechanism for Eurozone states in financial
trouble and to ensure greater economic convergence in the future — was
overshadowed by the collapse of the Portuguese government.

Following the resignation of Portuguese Prime Minister Jose
Socrates late Wednesday, the country’s 10-year borrowing cost hit a
record high of 7.7% — far above the level considered sustainable —
raising concerns that Lisbon may have to tap the current EFSF bailout
fund.

However, EU Commission President Jose Manuel Barroso said the EU
leaders had “not discussed [the] possibility” of Portugal having to
request aid. Barroso said that Socrates, who attended the summit despite
having submitted his resignation, assured his EU colleagues that “all
the commitments in terms of the fiscal targets will be respected” by any
incoming government.

So “we expressed confidence in the capacity of Portugal to overcome
the current situation” and meet their financing needs in the months to
come, Barroso said.

On the permanent bailout fund, the European Stability Mechanism,
Van Rompuy said leaders now have “complete agreement” on the terms. “We
reconfirmed the operational features of the ESM. We will make sure that
E500 billion is available with a triple-A status,” he said.

The fund will have a total of E700 billion, including E80 billion
of paid-in capital and E620 billion provided in the form of callable
capital and guarantees.

There had been some concern heading into the summit that a final
decision could be delayed because German chancellor Angela Merkel wanted
to stretch out the German contributions of paid-in capital over five
years rather than four, as laid out in proposals by Finance Minister
Wolfgang Schaeuble earlier this week.

In a compromise deal favoring the German position, the E80 billion
in paid-in capital provided by the euro area member states will be
phased in from July 2013 with five annual installments, but member
states “commit to accelerate” contributions “in the unlikely event that
this is needed,” Van Rompuy said.

Van Rompuy also said that leaders had finalized an agreement to
boost the lending capacity of the current, temporary bailout fund, the
EFSF, to E440 billion from the current E250 billion. He offered no
details other than to say “it will be available in June.”

The increase for the EFSF is to come from doubling the guarantees
of the Eurozone’s six AAA-rated countries. But Finland, which is one of
them, requested a delay in the final decision due to domestic political
pressure.

In addition to the bailout fund agreements, leaders also “have
adopted the euro plus package,” Van Rompuy said, promising it would
“provide a new quality of economic coordination.”

Six leaders from non-Eurozone countries announced that they would
join the euro plus package. They are countries are Denmark, Poland,
Bulgaria Romania, Lithuania and Latvia. “The pact remains open for the
others to join later on,” Van Rompuy said.

Barroso said the agreement completes “the monetary union with a
real economic union.”

Another controversial issue — negotiating lower interest rates on
Ireland’s E85 billion bailout loan deal — was taken off the agenda
shortly before the summit.

Irish Prime Minister Enda Kenny said he wanted to postpone further
negotiations until the results of the country’s bank stress tests are
known. “It is much more important to be absolutely clear about the
extent of liability before we have any further discussions,” Kenny said
Thursday.

Once Irish bank stress test results are revealed at the end of next
week and any potential impact on the lending program are clear, “we can
take a decision as soon as possible” among European finance ministers on
how to proceed, Van Rompuy said.

–Frankfurt bureau tel.: +49-69-720142. Email: jtreeeck@marketnews.com

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