Merkel sets limits on euro zone risk-sharing

Fri Dec 14, 2012 7:27am EST
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By Noah Barkin and Mark John

BRUSSELS (Reuters) - European leaders agreed on Friday to press on with further steps to tackle their debt crisis but German Chancellor Angela Merkel threw out a proposal to boost risk-sharing with a fund to help euro zone states in trouble.

Germany's rejection of an idea strongly backed by France showed the potential for more tensions over crisis management, a day after the bloc clinched a deal on euro zone-wide banking supervision and approved long-delayed aid to Greece.

After more than eight hours of late-night talks, leaders promised to push ahead with setting up a mechanism to wind down problem banks and launched talks on how to make countries stick to economic targets with the help of a common fund.

But at an early morning news conference, Merkel made clear that proposals for a substantial "shock absorber" fund and common unemployment insurance were off the table, setting out a far more restrained carrot-and-stick vision.

"We are talking about support linked to improvements in competitiveness." Merkel told reporters of the fund envisaged.

"We are talking about a very limited budget. Not three digit billions, rather 10 or 15 or 20 billion euros."

European Council President, backed by France and other countries, proposed in the run-up to the summit establishing a more ambitious "fiscal capacity" for the euro zone that could form the basis for common debt issuance -- an idea seen with great skepticism in Berlin.

French President Francois Hollande insisted the aim of closer fiscal integration would still be to bolster growth and jobs as well to encourage reform.   Continued...

German Chancellor Angela Merkel holds a news conference during a European Union leaders summit, in Brussels December 14, 2012. REUTERS/Eric Vidal