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EU leaders reject bid for bailout of Eastern Europe

March 02, 2009|Associated Press

BRUSSELS — German Chancellor Angela Merkel and other European Union leaders flatly rejected a new multibillion-euro bailout for Eastern Europe on Sunday, suggesting that additional aid be given to struggling nations only on a case-by-case basis.

Germany and the Netherlands also shot down suggestions that Eastern European countries that have seen their currencies plummet be given a quick entry to the euro, which has remained strong against the U.S. dollar and Japanese yen.

But French President Nicolas Sarkozy said the EU could look at reviewing the stringent euro currency membership criteria and two-year waiting period once the global economic crisis ended.

Germany, the region's largest economy, has been under rising pressure to take the lead in rescuing eastern EU members staggering from sinking currencies, shrinking demand for exports and rising debt, but Merkel insisted a one-size-fits-all bailout was unwise.

"Saying that the situation is the same for all Central and Eastern European states, I don't see that," said Merkel, adding that "you cannot compare" the dire situation in Hungary with that of other nations.

That tough stance came even as Hungarian Prime Minister Ferenc Gyurcsany warned that the global credit crunch was creating a widening economic chasm in the 27-nation bloc that threatened to rend Europe.

Noting that eastern members were being hit the hardest, he suggested setting up an EU fund of as much as 190 billion euros ($241 billion) to help restore trust and solvency in eastern members.

Joining Hungary in vowing to pressure richer members to back up vague pledges of support with action were eight other EU nations -- Poland, Slovakia, the Czech Republic, Bulgaria, Romania and the three Baltic states of Estonia, Latvia and Lithuania. But Hungary's plan was quickly shot down by Germany and others, which balked at the costs.

EU Commission President Jose Manuel Barroso said Eastern European countries already were getting billions in emergency rescue funds and loans from the EU, the World Bank and other financial institutions and did not need a sweeping new bailout plan.

He said the EU has 25 billion euros ($32 billion) in reserve to help member nations. It already gave 9.6 billion euros of that to Hungary and Latvia, the first EU government to fail because of the global economic turmoil.

Gyurcsany acknowledged that other EU leaders had questioned his plan but insisted they would study it.

"If you are speaking about Europe and you are facing this type of complicated challenge, you have to respond in a way not just concentrating on independent nations, but some regions as well," he said.

Gyurcsany said eastern EU nations could need as much as 300 billion euros ($380 billion), or 30% of the region's gross domestic product this year.

He warned that failure to offer bigger bailouts "could lead to massive contractions" in eastern economies and "large-scale defaults" that would affect Europe as a whole because of political unrest and immigration pressures.

Czech Prime Minister Mirek Topolanek, who chaired Sunday's talks, promised that the EU would not leave any nation "in the lurch."

Sunday's summit was the first of three high-level talks EU leaders have planned to forge a common strategy to combat the worsening recession. Yet vague statements issued by the leaders hardly appeared a unified stance.

French and German leaders made separate calls for more EU funds to keep European carmakers alive and insisted those subsidies would not be protectionist.

Merkel and Sarkozy called EU subsidy guidelines too stingy and said they needed to be updated.

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