Page last updated at 16:38 GMT, Thursday, 16 October 2008 17:38 UK

Budget fears dominate EU summit

By Laurence Peter
BBC News, Brussels

Smokestacks in Germany
The financial downturn has hit EU greenhouse gas emission targets

Anxiety about national budgets dominated an EU summit where the rescue and supervision of banks vied with climate change as the most pressing issue.

The severity of the financial crisis has had an impact on the EU's ambitious plans to cut greenhouse gas emissions, which look likely to be watered down under pressure from a new "eastern bloc", along with Italy.

The billions of euros required to adapt large enterprises to the emissions targets threaten to put further strain on budgets already groaning under the weight of bank bail-outs and rising unemployment.

Poland, heavily reliant on coal-fired power stations, teamed up with seven other former communist countries to demand a reassessment of the burden imposed by the targets.

Then Italy's Prime Minister, Silvio Berlusconi, struck a protectionist note, saying Italian firms were "in no state to take on costs like those we thought about last year".

Fiercely debated

The European Commission will now look at the specific problems that some countries face in meeting the targets. But it is determined - along with the French EU presidency - to clinch a deal on the targets before next year.

The proposed changes to the EU's pioneering Emissions Trading Scheme (ETS) will be fiercely debated in the European Parliament and by ministers, who are supposed to hammer out a deal strong enough to inspire the rest of the world. The EU is gearing up for major international talks next year on climate change.

Mark Mardell

For those who want the European Union to walk with power and purpose on the world stage this summit is both triumph and tragedy
BBC's Mark Mardell in his blog

One of the parliament's chief negotiators on the climate package, Green MEP Satu Hassi, urged EU leaders to "keep firm with the commitments already given".

"The financial crisis does not blow away climate change," she said, adding that the crisis "teaches us that early action is always wiser than emergency action".

Yet in the absence of a clear roadmap on the climate package, EU leaders were keen to show a united response to the banking crisis.

The turmoil in Wall Street, with the freezing of inter-bank lending, triggered emergency bank bail-outs by individual European governments before the 15 eurozone countries announced a joint multi-billion-euro plan to recapitalise banks and guarantee loans.

UK Prime Minister Gordon Brown basked in his fellow Europeans' praise for showing the way, with his rescue plan for British banks, estimated to be worth 500bn (641bn euros).

But, in contrast with his famously low-key appearances at EU summits, he joined the chorus of calls for more co-ordinated EU action.

'Crisis cell'

The EU plans to set up a "financial crisis cell" - a rapid response team tasked with co-ordinating EU action in any future financial crises. Any member state in trouble will be able to trigger the new alert system. The idea is to prevent any country's state intervention harming the interests of another EU member.

But France's President Nicolas Sarkozy also stressed the need for global solutions, to refashion the world's financial system and make it "fit for the 21st century".

He and commission president Jose Manuel Barroso will meet US President George W Bush on Saturday to prepare for a global crisis summit - a "G8 plus", including emerging powers like China and India.

French President Nicolas Sarkozy (left) with European Commission President Jose Manuel Barroso in Brussels
President Sarkozy wants a tighter rein on the financial sector

Mr Sarkozy's priority is tighter financial supervision, with action on hedge funds, tax havens, executive pay and ratings agencies.

Maintaining the international competitiveness of European industry is looming as the next big challenge, once some stability returns to the banking system.

Mr Sarkozy says he wants to see the same joint EU effort applied to that problem as to the banking crisis.

Energy security is highlighted as another EU priority in the summit conclusions - though it was overshadowed by the urgent economic and climate agenda.

The fuel protests across Europe earlier this year - triggered by surging oil prices - and worries about the reliability of Russian gas supplies made energy security a pressing issue.

The EU wants to diversify its sources of supply, make the energy market more transparent and improve the Baltic region's pipeline network.

As for the Lisbon Treaty, which dominated the last EU summit in Brussels, the Irish government has pledged to come up with a plan by December. But the bank crisis has forced the EU's controversial institutional reforms onto the back-burner.

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