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EU's Czech Presidency Blames Media For 'Virtual' Crisis

Czech Prime Minister Mirek Topolanek (right) greets European Commission President Jose Manuel Barroso in Brussels ahead of the summit.
BRUSSELS -- The EU's Czech presidency has turned on the media in its attempts to contain the worsening economic crisis, which some have suggested could threaten the future of the entire bloc.

Czech Prime Minister Miroslav Topolanek said reports of impending economic catastrophe and discord are part of a "virtual debate" created by the media, which bears no relation to reality.

He said there was universal agreement around the EU table that governments will respect EU rules of fiscal discipline, will abstain from protectionist steps to protect their markets, will extend banking recapitalization measures beyond their own countries, and generally support the grounding principles of the EU's single market, which stipulates that competition must not be hindered within the bloc's borders.

Topolanek shrugged off reports of Eastern Europe's increasingly dire economic situation, speaking of "considerable progress" that has been made and "very good" prospects for continued sustainable growth.

This is liable to disappoint most capitals in the region, with Latvia's economy predicted to contract by 12 percent this year, Estonia's by 10 percent, Hungary on the ropes after an International Monetary Fund bailout, and most regional currencies under heavy pressure.

The president of the European Commission, Jose Manuel Barroso, also played down the plight of the EU's eastern member states. He said it was "clearly not the wish of the member states, namely the Central and Eastern European member countries, they do not want...a program just for them, because there is not, in fact, a specific reason to treat [them as] a group."

But Barroso did not address any of the specific predicaments faced by the new member states. Most -- led by Hungary, Latvia, Romania, and Bulgaria -- need large amounts of credit. Others -- like the Czech Republic and Slovakia -- fear losing their newly acquired manufacturing industries, which could retreat to their countries of origin, like France.

The latter countries could benefit from a decision made in principle to allow member states to inject loans into their car industries as long as there is no discrimination among production locales within the EU.

Euro Debate

There are growing calls in those Eastern European countries not yet members of the EU's common euro currency -- a large majority -- for a fast-track inclusion in the project in the hope this would afford a measure of protection from the global turmoil. Topolanek and Barroso said no decisions were made at the snap summit, but they did suggest that a debate on relaxing eurozone entry rules could be in the offing relatively soon.

Beyond looking to the euro for macroeconomic cover, Eastern European EU member states fear eurozone members could adopt short-term consolidation measures -- such as issuing "eurobonds" in a bid by richer countries to shoulder the debt burden of the poorer eurozone members -- which could further undermine the attractiveness of their own currencies and economies.

EU leaders promised that impending cash injections into rich countries' banking systems will reach subsidiaries in eastern member states. Many Eastern European leaders fear that the continued flight of Western investment could leave them in a suffocating long-term credit crunch. Some have even spoken of the threat of a new "economic Iron Curtain" descending across the EU.

Nine Eastern European leaders held a presummit meeting, hosted by Poland, which produced no immediate results.

However, the crisis cuts both ways. The exposure of banks and other financial institutions in the 16-member eurozone in Central and Eastern Europe is reckoned to exceed $1.6 billion. As a result, the credit ratings of smaller donors such as Sweden and Austria have already taken a pummeling.

Austrian Chancellor Werner Faymann offered a correspondingly bleak assessment of the situation on his arrival to the summit, saying that "one should prepare for support so that the EU does not break apart in difficult times."

The damage is being felt in larger countries, too, and the euro itself has come under pressure in global financial markets.

Beyond the EU's own borders, Ukraine's economy is teetering on the brink of collapse, with the country's government deeply divided and deadlocked.

Should Ukraine founder, the EU's Eastern Partnership initiative, due to be officially unveiled later this month and celebrated in an east-west summit in Prague on May 7, would be in tatters. This would be a huge blow to the bloc's foreign-policy ambitions and especially for its avowed intention to contest Russian influence in Eastern Europe.