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Conservative EU leaders struggle for crisis unity

By Karl Ritter

Associated Press

Published: Friday, March 4 2011 12:55 p.m. MST

Finland's Deputy Prime Minister Jyrki Katainen, right, shakes hands with Italy's Prime Minister Silvio Berlusconi during the EPP party heads of state meeting at the Kamp Hotel in Helsinki, Friday, March 4, 2011. A series of EU summits this month kicks off Friday in Helsinki, where the eurozone's conservative leaders will wrestle over how much of their sovereign economic decision-making they are willing to sacrifice for the sake of a more stable euro.

Virginia Mayo, Associated Press

HELSINKI — Europe's center-right leaders struggled Friday to show a united front amid stark divisions on how to tackle the debt crisis that has rocked the continent over the past year.

The summit of the conservative European People's Party in Helsinki kicks off three weeks that will decide whether the eurozone can finally get a grip on the crisis that has already pushed Greece and Ireland into multibillion international bailout.

The debate will culminate on March 25, when heads of state and government hope to seal the "comprehensive solution" to the crisis they have promised to the markets.

"Apart from supporting our Finnish friends, we want to make the euro a stronger currency and strengthen European competitiveness," German Chancellor Angela Merkel said as she arrived in Helsinki.

Finland's National Coalition Party heads into elections on April 17, in which Finance Minister Jyrki Katainen is a leading candidate for prime minister.

"I hope he wins," said Enda Kenny, Ireland's prime minister in waiting after his own Fine Gael party just toppled its opponents amid popular frustration over the country's economic woes.

Beyond that, however, Europe's conservative leaders — among them the continent's most powerful decision makers — were unlikely to agree on much Friday.

Germany's Merkel is reluctant to put up more money to help less disciplined countries. Kenny, meanwhile, is not only demanding lower interest rates on Ireland's bailout but has also raised the idea of making senior bank bondholders take losses.

European Commission President Jose Manuel Barroso has called for broader powers and more money for the region's bailout fund, while Silvio Berlusconi's Italy is facing ever louder calls to overhaul its sluggish economy.

Amid such division, analysts increasingly expect a watered-down deal by the end of the month that falls well short off the overhaul of the euro zone's crisis strategy that had seemed tangible just weeks ago.

Friday's talks centered on the so-called "pact for competitiveness" — an attempt at closer economic and fiscal coordination between the 17 states that share the euro but have widely differing economies.

The pact was championed by Germany's Merkel, who amid troubles at home is desperate to have something to show in return for being the region's paymaster.

"It will always have to be a give and take," Merkel said, adding that support for the pact was growing.

Originally, Berlin had demanded euro-zone countries improve their economic performance through unpopular measures such as getting rid of automatic inflation-linked wage increases and agreeing on a common base for corporate taxation.

Such steps, the Germans argued, would make countries like those of Ireland, Greece and Portugal more solvent and their companies more competitive in international markets.

However, over the past month those measures have been softened by separate proposals from the European Commission and EU Council President Herman Van Rompuy, which would leave governments with vague commitments to create limits to national deficits and make pension systems more sustainable.

In her statements Friday, Merkel was reluctant to pinpoint precise benchmarks for the pact, mentioning only pensions and unit labor costs.

Even less progress was likely in Helsinki on the question that markets are keenest to get answered — whether the eurozone's bailout fund, the European Financial Stability Facility, would get its long-awaited overhaul.

The EFSF determines the interest rates a country has to pay for its rescue loans. More importantly, the European Central Bank, the European Commission as well as struggling Portugal have been calling for the fund to get broader powers, such as buying government bonds on the open market or extending short-term liquidity lines to struggling countries.

But Merkel and the German central bank have both frowned upon such wider powers. Moreover, the German parliament has indicated that it might block any changes that could allow the bailout fund to buy bonds.

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Associated Press writer Jari Tanner contributed to this report. Gabriele Steinhauser reported from Brussels.

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