EU rejects East Europe’s bailout plea

European Union leaders yesterday turned down a proposed multi-billion euro rescue package for the deeply troubled East European economy, as the meeting in Brussels exposed deep divisions within the union.

Ahead of the EU summit, Hungary's Prime Minister Ferenc Gyurcsany, who has been orchestrating the calls for a rescue package, urged the European Union to show solidarity by approving the package. He said his plan could prevent the creation of a new "iron curtain" which would divide Europe between rich and poor nations.

"In the beginning of the nineties we reunified Europe, now the challenge is whether we will be able to reunify Europe financially," Gyurcsany told reporters.

However, Chancellor Angela Merkel of Germany, Europe's largest economy, made it clear that she strongly opposed a bailout plan for Eastern Europe. "The situation is very different in each EU country and aid should be handled on a case by case basis," she said. "You cannot compare Slovenia or Slovakia with Hungary. We help countries in need. But I think a one size fits all bailout is unwise."

French President Nicolas Sarkozy recently raised concerns in Eastern Europe when he announced plans to lend French carmakers billions of dollars on the condition that they not close French plants or move operations to "the Czech Republic or elsewhere" where manufacturing costs are lower.

Ahead of the summit, the leaders of nine countries - Poland, Hungary, Slovakia, the Czech Republic, Bulgaria, Romania and the three Baltic states - forged a common stand to pressure richer members of the 27-nation EU to back up vague pledges of support with action.

Polish Prime Minister Donald Tusk said the nine leaders called for "a spirit against protectionism and egoism."

But EU president Jose Manuel Barroso of Portugal sought to allay fears of protectionism. "In fact, we have discussed specific issues - namely the automotive sector and how it is possible to support the automobile sector while not breaking the rules of the internal market and not seeing national measures that could be detrimental to other countries," said Barroso.

Sunday's EU summit was the latest in a series of European meetings before the leaders of the "Group of 20" major industrialised nations meet in London next month.

Hungary, Poland and the Baltic countries of Estonia, Latvia and Lithuania also want the EU to fast-track their bids to join the euro-currency, which could offer them a stable financial anchor. Latvia's government has already collapsed amid the economic fallout.

But Czech Prime Minister Mirek Topolanek disagreed. In comments translated by Euronews television, Topolanek said, "Concerning the rules for entering the eurozone, I think the majority of countries agree that it would be an error to change the rules of the game at this time."

At the same time, Topolanek called on his counterparts to act together. "The EU does not want … a Europe divided along a north-south or an east-west line, pursuing a beggar-thy-neighbour policy is unacceptable," he said.

Jean-Claude Juncker, the Prime Minister of Luxembourg and the chairman of the eurogroup of 16 single-currency countries, also rejected the pleas. ''I do not think we can change the accession criteria to the euro overnight,'' he said. ''This is not feasible.'' The summit agreed to keep the status quo and to look at each country case by case.

In a meeting widely reported to be divisive, with a plethora of conflicting interests, other EU members, like Sweden, wanted to coordinate a Europe-wide bailout plan for car producers.

The east European economies, whose boom was mainly sustained by west European funding after the collapse of the Soviet Union, have been staggered as cheap credit dries up and export markets shrink, causing their currencies to plummet.

With Hungary among the hardest hit, Gyurcsany said eastern EU countries could need up to 300 billion euros ($380 billion), or 30 per cent of the region's GDP, this year.

On Friday, the European Bank of Reconstruction and Development, the European Investment Bank and the World Bank said they will jointly provide 24.5 billion euros ($31.1 billion) in emergency aid to shore up the battered finances of eastern European banks.