Warning over Europe debt crisis
Croatians rallied in Zagreb yesterday to call for a referendum on EU membership after the former Yugoslav republic signed up in December to join by mid-2013.
GERMAN chancellor Angela Merkel yesterday said the downgrading of the credit rating of nine European countries – including France – underlined the “long road” faced by the Eurozone and called for a new budget discipline pact and a permanent rescue fund.Germany kept its triple AAA rating but Standard & Poor stripped France, whose president Nicolas Sarkozy has co-piloted the Eurozone rescue drive with Merkel, of its top-notch status – fuelling concerns that the move could complicate Europe’s efforts to keep its weaker economies afloat.Merkel said she had “taken note” of S&P’s decision, but repeatedly stressed it was only one of three major rating agencies. “The decision confirms my conviction that we in Europe still have a long road ahead of us before the confidence of investors is restored,” she said at a meeting of her right-wing CDU party in the north German city of Kiel. “But I think it can be seen that we have set off with determination along this road to a stable currency, solid finances and sustainable growth.” Merkel stressed the importance of a new treaty enshrining tougher fiscal rules, for which Germany has pushed hard. Most European Union leaders agreed in early December to draw up the pact – Prime Minister David Cameron exercised the UK’s veto – and Merkel has said the pact could be signed as early as the end of this month, and at the beginning of March at the latest.“We are now called upon ... to implement quickly the fiscal pact and implement it decisively – without trying to water it down everywhere,” she said.The chancellor sought to allay concerns that the downgrade of France, the 17-nation Eurozone’s second strongest economy after Germany, would complicate the work of the bloc’s temporary rescue fund, the £463 billion European Financial Stability Facility.However, she did underline the urgency of putting its permanent successor, the European Stability Mechanism (ESM), in place. European leaders already have decided to get it up and running in July, a year ahead of the original schedule; Merkel and Sarkozy said on Monday they would consider speeding up payments into the ESM.The downgrades “won’t torpedo the work of the EFSF now – I see no need to change anything about the EFSF now,” she said. “I am convinced the EFSF can fulfil the needs it still has to fulfil in the coming months with the existing methods.”She added that “we will work to implement as quickly as possible the ESM – that is also important for investors’ confidence”.The ESM will be able to lend £330bn. In contrast to the EFSF, it will have paid-in capital from euro countries, similar to a bank, which makes it less vulnerable to downgrades of contributing states.Merkel said Europe needs the new fund, “which is underlaid by capital and will be independent from such [ratings] evaluations”. As for the current temporary fund, she suggested that its top rating isn’t so important.
She said: “From the beginning, I wasn’t of the opinion that the EFSF absolutely has to be triple-A. Of course it isn’t easier to borrow money on the capital market if you have a somewhat worse rating, but as the French finance minister said yesterday, AA+ really isn’t a bad rating.” .She also said she didn’t expect Friday’s S&P decision to lead to “Germany having to do more in comparison with others.” Meanwhile, after it had downgraded nine of the Eurozone’s 17 countries, S&P said it saw continued risks from the debt crisis that has overshadowed Europe for the past two years and said the single currency area was heading towards recession.It also warned that France was at risk of further cuts if a recession further inflates its debt and budget deficit.“The policy response at the European level has in our view not kept up with the rising challenges in the Eurozone,” S&P credit analyst Moritz Kraemer said, forecasting a 40 per cent chance of Eurozone output contracting by up to 1.5 per cent in 2012.
Croatians rallied in Zagreb yesterday to call for a referendum on EU membership after the former Yugoslav republic signed up in December to join by mid-2013.
GERMAN chancellor Angela Merkel yesterday said the downgrading of the credit rating of nine European countries – including France – underlined the “long road” faced by the Eurozone and called for a new budget discipline pact and a permanent rescue fund.Germany kept its triple AAA rating but Standard & Poor stripped France, whose president Nicolas Sarkozy has co-piloted the Eurozone rescue drive with Merkel, of its top-notch status – fuelling concerns that the move could complicate Europe’s efforts to keep its weaker economies afloat.Merkel said she had “taken note” of S&P’s decision, but repeatedly stressed it was only one of three major rating agencies. “The decision confirms my conviction that we in Europe still have a long road ahead of us before the confidence of investors is restored,” she said at a meeting of her right-wing CDU party in the north German city of Kiel. “But I think it can be seen that we have set off with determination along this road to a stable currency, solid finances and sustainable growth.” Merkel stressed the importance of a new treaty enshrining tougher fiscal rules, for which Germany has pushed hard. Most European Union leaders agreed in early December to draw up the pact – Prime Minister David Cameron exercised the UK’s veto – and Merkel has said the pact could be signed as early as the end of this month, and at the beginning of March at the latest.“We are now called upon ... to implement quickly the fiscal pact and implement it decisively – without trying to water it down everywhere,” she said.The chancellor sought to allay concerns that the downgrade of France, the 17-nation Eurozone’s second strongest economy after Germany, would complicate the work of the bloc’s temporary rescue fund, the £463 billion European Financial Stability Facility.However, she did underline the urgency of putting its permanent successor, the European Stability Mechanism (ESM), in place. European leaders already have decided to get it up and running in July, a year ahead of the original schedule; Merkel and Sarkozy said on Monday they would consider speeding up payments into the ESM.The downgrades “won’t torpedo the work of the EFSF now – I see no need to change anything about the EFSF now,” she said. “I am convinced the EFSF can fulfil the needs it still has to fulfil in the coming months with the existing methods.”She added that “we will work to implement as quickly as possible the ESM – that is also important for investors’ confidence”.The ESM will be able to lend £330bn. In contrast to the EFSF, it will have paid-in capital from euro countries, similar to a bank, which makes it less vulnerable to downgrades of contributing states.Merkel said Europe needs the new fund, “which is underlaid by capital and will be independent from such [ratings] evaluations”. As for the current temporary fund, she suggested that its top rating isn’t so important.
She said: “From the beginning, I wasn’t of the opinion that the EFSF absolutely has to be triple-A. Of course it isn’t easier to borrow money on the capital market if you have a somewhat worse rating, but as the French finance minister said yesterday, AA+ really isn’t a bad rating.” .She also said she didn’t expect Friday’s S&P decision to lead to “Germany having to do more in comparison with others.” Meanwhile, after it had downgraded nine of the Eurozone’s 17 countries, S&P said it saw continued risks from the debt crisis that has overshadowed Europe for the past two years and said the single currency area was heading towards recession.It also warned that France was at risk of further cuts if a recession further inflates its debt and budget deficit.“The policy response at the European level has in our view not kept up with the rising challenges in the Eurozone,” S&P credit analyst Moritz Kraemer said, forecasting a 40 per cent chance of Eurozone output contracting by up to 1.5 per cent in 2012. 
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