Germany rebuffed calls for more financial risk-sharing in the eurozone on Friday, rejecting a proposal for a fund to help debt-laden countries cope with economic shocks and leaving open who would pay to wind down stricken banks.
With an eye on a general election next year, Chancellor Angela Merkel made EU officials drop any mention of a shock-absorber fund, backed by France and southern European states, from the conclusions of a two-day European Union summit.
The European Central Bank also rejected any let-out clauses from fiscal consolidation. "Differentiating between good and bad deficits makes no sense", ECB executive board member Jörg Asmussen told Reuters. "Each deficit has to be refinanced on the capital markets. One should not touch the rules of the (EU) Stability Pact."
Amid optimism from many leaders that the eurozone has turned the corner by agreeing on a single banking supervisor and fresh support for Greece, Merkel warned that the bloc faced a long, hard slog to clean up public finances and revive growth. "One reason I am careful with my forecasts is the adjustment process, the changes that we are going through are very difficult and painful", she said.
Merkel made clear she had agreed only to a carrot-and-stick "solidarity fund" to reward states that carry out major economic reforms. "We are talking about support linked to improvements in competitiveness." she told reporters. "We are talking about a very limited budget. Not three digit billions, rather 10 or 15 or 20 billion euros."
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