Merkel, Hollande differ sharply going into EU summit

France and Germany differed sharply on how to tackle the bloc’s crisis going into an EU summit Thursday, as violence broke out in Greece amidst protests against fresh spending cuts. Â Â

Police in Athens used tear gas to disperse protesters as a general strike brought transportation across the country to a virtual halt.

An elderly man died, apparently from heart failure, during one demonstration while five people including two policemen were hurt in sporadic clashes, Greek media said.

Meanwhile Paris and Berlin appeared set for a clash on whether to continue to tighten further the fiscal austerity policy the bloc has been following, or to push forward with measures that help eurozone states cope with the crisis.Â

Ahead of the meeting Paris pressed for a single banking union as the way forward while Berlin demanded Brussels be given control of member state budgets.

Chancellor Angela Merkel told the German parliament that the EU should be given the power to vet, and veto if necessary, national budgets if they breach EU fiscal rules.

The EU’s economic affairs commissioner should get beefed-up oversight powers, she said, adding: ‘We believe ... we could go further by granting the European level real rights to intervene in national budgets.’

‘Unfortunately,’ Merkel said, some EU states — unnamed — were not ready for such a step.

Hollande, who has been out of step before with Berlin, was blunt in return.

‘The subject of the (EU summit) is not budgetary union, it is banking union,’ the president told a meeting of European Socialists in Brussels.

‘So, the only decision that we must take, or rather confirm, is the setting up of the banking union by the end of the year, and notably the first step, which is banking supervision,’ he said.

Austrian Chancellor Werner Faymann struck another discordant note, saying he wanted the EU to focus ‘on real measures to combat unemployment, especially among the young,’ rather than proposals for a new-style EU commissioner.

Diplomatic sources said Hollande and Merkel would meet before the two-day summit opened at 1500 GMT, with once close EU partners France and Germany crucial to any progress.

The exchanges reflect continued strains after a ‘breakthrough’ June summit — held as the eurozone debt crisis looked set to bring down Spain — agreed the bloc had to accept tighter budget policy coordination if the euro was to survive.

In addition, it agreed to put in place a single ‘banking union’ supervisor by the end of the year, a key step to allow the new European Stability Mechanism (ESM) rescue fund to begin directly recapitalising stricken states’ banks.

That would signify an important change as bank aid would no longer threaten to push countries into a full bailout, as Ireland was forced to seek.

But implementation is the sticking point, with many governments reluctant to cede more power to Brussels.

Britain and other non-euro states worry that the proposed European single bank regulator will override their national jurisdiction.

There are also serious differences over some of the June summit commitments, especially on the role the ESM can play in dealing with banks that some states — Ireland and Spain, for example — have already bailed out.

Officials accordingly are playing down expectations over this summit, describing it as a stock-taking exercise before a November meeting on the EU’s 2014-2020 budget and then a December make-or-break summit on commitments to strengthen economic and monetary union.

The opening exchanges suggest the discussions will be tough, with decisions likely to be sent back to officials for more work.

Greece meanwhile suffered its fourth general strike of the year on Thursday that severely disrupted transport and highlighted again popular outrage at the tough austerity measures it agreed in return for bailouts.

Unions said they will not tolerate a third straight year of cuts to wages, pensions and benefits while unemployment soars to 25 percent.

The news on Spain was mixed. Figures Thursday showing that bad loans held by Spanish banks soared to a record high in August were a reminder that the problem will not go away without action.

At the same time, Spain appears finally to be ready to seek a limited bailout using the ESM which would in turn allow the European Central Bank (ECB) to intervene on public debt markets, pushing down borrowing costs for Madrid.