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EU Summit Overshadowed By Banking Crisis

European Commissioni President Jose Manuel Barroso (right) and British Prime Minister Gordon Brown in Brussels
BRUSSELS -- The two-day EU summit opening in Brussels will be preoccupied by the financial crisis that has engulfed the world since mid-September.

In recent weeks, various EU governments have announced rescue plans for the banking sector that the bloc is seeking to coordinate. Other summit highlights include Georgia and Russia issues, the EU's constitutional woes, and climate change.

The watchword for the EU in the global banking crisis has been "coordination." The severity and rapidity of the onset of the crisis has presented a tough test for the bloc's unity.

For the moment, the EU seems to have weathered the worst of the storm. Individual governments have rescued a number of failing banks and the 15 eurozone governments together with Britain on October 12 thrashed out some ground rules for further measures.

Seals Of Approval

The leaders of the bloc's 27 states are now expected to put their seals of approval on these measures -- which involve governments buying shares in private banks, underwriting bank credit, and guaranteeing private accounts held in EU countries.

The negotiation of a new agreement with Russia is not and should not be seen as a gift for Russia. It is a way for Europe of pursuing our own fundamental interests.
Speaking on the eve of the summit on October 14, European Commission President Jose Manuel Barroso praised the coordination of European countries.

"I can say that the European response [to the crisis] is on its way. In its coordinated reaction, Europe has demonstrated its ability to react and come up with solutions," Barroso said. "And the response of the markets shows that the positive elements of this solution are not limited to Europe itself, but extend to the entire world."

The rescue action carries with it heavy costs. So far, the EU's total commitment amounts to some $1.8 trillion -- a little less than the entire gross domestic product of Italy, one of the bloc's larger members.

Similar commitments undertaken by the United States, meanwhile, total some $2.25 trillion.

The sums in question dwarf the EU's own $150 billion annual budget. The requisite funds will need to be found by the countries affected and this is causing concern in the relatively poor Eastern member states.

Another worry for the bloc is the impact of the rescue measures on budgets. Social spending is likely to be affected, unemployment is on the rise, and Europe's biggest economies are heading into a recession.

A number of senior EU politicians have predicted the crisis heralds an end to U.S.-style deregulated capitalism. EU leaders certainly blame Washington for the crisis. In his speech on October 14, Barroso noted that the crisis originated "yet again" in the United States.

Bringing leading banks partly into public ownership -- a measure adopted on both sides of the Atlantic -- is likely to transform the face of global capitalism. But imposing greater regulation on the global financial sector will be more difficult. Within the EU itself, many governments reject attempts to create a single pan-European banking supervisor. Larger member states especially are loathe to give up guarded national prerogatives.

In the longer term, the EU leaders can have few illusions -- even concerted, EU-wide action will not be enough to overcome the crisis. Only global action can shore up the confidence of the markets, kick start lending among banks, and restore credit flows to businesses and consumers.

The EU's foreign ministers will discuss the implications of the Russian-Georgian conflict later today.

Not A 'Gift' To Russia

Speaking after meeting the Georgian President Mikheil Saakashvili in Brussels on October 14, Barroso indicated the EU is preparing to unfreeze its partnership talks with Moscow, suspended on September 1 in the wake of the conflict.

"The negotiation of a new agreement with Russia is not and should not be seen as a gift for Russia. It is a way for Europe of pursuing our own fundamental interests," Barroso said. "We have fundamental interests at stake in the economic field, also working together with Russia on nonproliferation, on fighting organized crime, on other global issues where it is important for the European Union to have a working relationship with Russia, for instance [to] fight climate change, [and in] energy security."

EU diplomats say, however, that determined opposition from Britain, Sweden, Poland, and the three Baltic countries is likely to block a quick decision. The seven countries say Russia's withdrawal last week from undisputed Georgian territory is not enough and that Moscow must reduce troop levels in the separatist territories of Abkhazia and South Ossetia.

The EU stipulated as much when it announced the suspension of talks on September 1, saying they would not be resumed until Russia withdraws its troops to lines held before hostilities began on August 7.

France and Germany argue that such a withdrawal is highly unlikely. Backed by the European Commission, they would like to relaunch the partnership talks with Russia no later than at the next EU foreign ministers' meeting on November 10.