Barroso: 'It is a fight for the future of Europe'

Options for the introduction of common Eurobonds would be put forward soon, European Commission President José Manuel Barroso said in a speech to the European Parliament as he paved the way for deeper integration.

Meanwhile the worsening economic crisis was underlined by Moody's downgrading of two of France's biggest banks because of their exposure to Greek debt, and the European Central Bank's decision to pump another €75bn into money markets. There were also calls from the United States and China for Europe to "get its house in order" and a pledge from emerging economies that they would come to the EU's aid.

Barroso said some of the Eurobonds proposals would require a treaty change, while others would not. And he cautioned that bonds sold jointly by all 17 euro area countries – which have been consistently opposed by Germany – were a longer-term project for integration and should not be confused with "immediate necessities". Many MEPs have long called for their introduction to give weak countries access to cheaper funds.

Admitting that Europeans were unconvinced by the EU's response to the crisis, Barroso said it was a "fight for the economic and political future of Europe," and that it was now up to member states to "demonstrate that they are serious" about tackling their debts and deficits. The troika of the commission, the ECB and the International Monetary Fund travelled to Greece this week to oversee its progress, while German Chancellor Angela Merkel and French President Nicolas Sarkozy were due to discuss the implementation of austerity measures with Greek Prime Minister George Papandreou, as fears of a Greek default rise.

Re-emphasising a point he made repeatedly by EU leaders, Barroso said the first priority should be putting in place measures agreed on 21 July to expand the eurozone bail-out fund, the European Financial Stability Facility, and its successor from 2013 the European Stability Mechanism. The package, which must be ratified by all member states, has been threatened by opposition from the junior partner in Slovakia's coalition government.

He added that as well as cutting deficits there should be a focus on growth and jobs, and said that further measures to discipline the financial services sector would be proposed in the coming weeks – including a financial transaction tax and measures to address widespread concerns about the influence of credit rating agencies.

Today one rating agency, Moody's, downgraded the long-term ratings of two of France's biggest banks, Societe Generale from Aa1 to Aa2, and Credit Agricole from Aa2 to Aa3, because of their exposure to Greek debt. And the country's biggest bank BNP Paribas was left on review for a potential downgrade. French lenders hold €41bn in exposure to public and private Greek debt and all three banks have seen their share prices hammered this year, losing between 41 and 55 per cent of their value.

There was more disappointing new for the economy as industrial production in the eurozone grew slower than hoped in July, according to figures published today by the EU's statistics agency Eurostat. The 1 per cent month-on-month increase followed a decline of 0.8 per cent in June and was bolstered mainly by a pick-up in Germany's performance. There, industrial production was up 4.1 per cent. Howard Archer, chief UK and European economist at IHS Global Insight, said that falling production in Italy and Spain was "particularly worrying".

Furthermore, industrial production in the eurozone grew slower than hoped in July, according to figures published today by Eurostat. The 1 per cent month-on-month increase followed a decline of 0.8 per cent in June and was bolstered mainly by a pick-up in Germany's performance. There, industrial production was up 4.1 per cent. Howard Archer, chief UK and European economist at IHS Global Insight, said that falling production in Italy and Spain was "particularly worrying".

He added: "Eurozone manufacturers are clearly finding life much more challenging as domestic demand is hit by tighter fiscal policy across the region, squeezed consumer purchasing power, heightened sovereign debt tensions and financial market turmoil. Also importantly, slower global growth has clearly hit foreign demand for eurozone goods as was evident in the second successive contraction in manufacturing export orders in August."

Urging Europe's stronger nations to move quickly on coordinating deeper eurozone integration, President Barack Obama, speaking to reporters at the White House yesterday, said: "Greece is obviously the biggest immediate problem. And they're taking some steps to slow the crisis - but not solve the crisis. The bigger problem is what happens in Spain and Italy if the markets keep making a run at those very big countries."

Separately emerging economies including India, China, Russia, Brazil and South Africa – the so-called BRICS – are to hold a meeting on 22 September to discuss expanding their holdings of euro denominate bonds. "We will meet next week in Washington to decide how to help the EU to get out of this situation," said Brazilian finance minister Guido Mantega yesterday. At the World Economic Forum in China, premier Wen Jiabao said Beijing was willing to help Europe but cautioned: "Countries must first put their own houses in order".

Already, Italy's finance minister Giulio Tremonti met Chinese officials last week to discuss possible bond purchases. A vote on Prime Minister Silvio Berlusconi's revised €54bn austerity measures is due in Italy's parliament today. Further action was demanded by the ECB after it stepped in last month to buy Italian government bonds, bringing down the country's borrowing costs.

In the parliamentary debate with Barroso, the leader of the Alliance of Liberals and Democrats Guy Verhofstadt, said: "Europe made a strategic mistake 12 years ago in not introducing a fiscal union to complement monetary union; a methodological mistake by relying purely on intergovernmental peer pressure and a tactical mistake in dithering for 18 months whilst sending a cacophony of mixed messages to the markets." He called for the introduction of Eurobonds, genuine economic governance, an EU-level growth and jobs pact and agreement on the six-pack of measures to improve eurozone surveillance.

And his counterpart in the Socialists and Democrats, Martin Schulz, warned that "social cohesion in Europe is under heavy pressure". He added: "This crisis threatens European unity. It is not just a question of the weakness of the euro but the weakness of those who ought to be managing the crisis. Either everyone is for himself or we are all together for the sake of our common currency. The middle way -- half yes, half no, let's see, let's do something else – that's what's ruining the euro."

Meanwhile UK Independence Party leader Nigel Farage branded the troika visiting Greece to assess its progress as "part-time overseas dictators". He told Barroso: "I don't think even you believe in what you are saying, because we all know that Greece is going to default. You can't say you weren't warned: you were all told that Greece should never have joined the euro."

But today's bad economic news was not limited to the eurozone. In the United Kingdom the latest figures showed unemployment up to 7.9 per cent, an increase of 80,000 people in the three months to July. Archer said: "This is a worrying jobs report which indicates that the economy's persistent weakness, lower business confidence and public sector job cuts are now feeding through to take a significant toll on jobs."