France, Spain: Europe must keep promises in crisis
PARIS -- The leaders of France and Spain said Wednesday that the 17 countries that use the euro already have all the tools they need to solve their debt crisis and now must put their promises into action.
French President Francois Hollande and Spanish Prime Minister Mariano Rajoy pointed specifically to plans to increase oversight of Europe's banks and to allow a new bailout fund and the European Central Bank to buy the bonds of countries struggling with high borrowing costs.
"We have to show that we're serious people and that we do what we say we're going to do," said Rajoy, speaking to reporters after meeting with Hollande in Paris.
Only once the fate of the eurozone is no longer in question will economic growth return, Hollande added.
"If we want there to be more growth in 2013, we have to first restore confidence, that is, do exactly what we have decided to," said Hollande. "Solve the eurozone questions, that's the first condition."
Europe's debt crisis is having a disastrous effect on the economy. France hasn't seen economic growth for three quarters and Spain is in its second recession in three years. Unemployment keeps rising across the continent, especially in Spain, where it is 25 percent.
While Rajoy and Hollande sought to give the impression that all the tough decisions had been made _ and that solving the crisis was just a matter of putting them into action _ significant questions remain.
One of the major uncertainties revolves around how European countries will support their struggling banks.
At a summit in June, eurozone countries agreed to make the European Central Bank the supervisor of their banks, with broad powers to impose sanctions. One group of countries, led by France, has been pushing for the ECB take up those powers quickly since once it does, the European bailout fund would be allowed to lend banks money directly.
Currently, bank bailouts are funneled through governments. That's the way Spain's bailout will work _ and that's bad news for Madrid, which will see its government debt increase and might have to even ask for its own rescue.
But Germany and others have been quibbling about how the bank supervisor should be set up and how quickly _ thus delaying the relief for banks and governments.
Rajoy also sought to dismiss concerns about Spain's growth prospects. A recent economic forecast from the International Monetary Fund said Spain's economy would contract 1.3 percent next year, more than double the Spanish government's own prediction.
Rajoy said the country was making important reforms and that those combined with European solutions would prove the IMF wrong.
"If we follow that strategy ... we'll see that the reality turns out to be better than the forecasts," Rajoy said.
Both Hollande and Rajoy also underscored that European leaders need to make clear that Greece is a vital part of the eurozone.
As Greece's debts pile up and questions increase about whether it can possibly hit the targets its international creditors have laid out for it, many have wondered if it will have to abandon the euro. That speculation has only increased fears for the entire eurozone.
The two leaders also talked about infrastructure projects, including a high-speed train line between Perpignan in southern France and Barcelona. Such projects could stimulate economic growth, but both governments can scarcely afford to spend the money if they are to meet their debt reduction efforts.
Sylvie Corbet in Paris, Jorge Sainz in Madrid and Barry Hatton in Lisbon contributed to this report.