NEWS,30.06.2012

Germany agrees to concessions in eurozone pact

 

By the end of a vital two-day summit here, European diplomacy had played out like soccer, with Spain and Italy - the two nations headed to the Euro 2012 finals - emerging victorious and the Germans returning home in shock.After a marathon 14 hours of talks, the deal that came together saw Berlin offer surprise concessions that could aid both Madrid and Rome in their desperate struggle to stave off economic collapse, even as it hinted at new political dynamic in Europe.Amounting to a series of highly technical rule changes, the deal addressed the core of the questions facing Europe: Who will cover the tab for its 2 1/2-year-old debt crisis, and how?Troubled eurozone countries could now have more options for aid, including using a pool of European rescue funds to directly recapitalize ailing banks. That, in turn, could spare governments the humiliation of having to ask for aid themselves to channel to domestic banks, sidestepping the kind of intrusive financial inspections imposed on Greece, Ireland and Portugal.The change could ultimately halt a toxic cycle that, while holding countries accountable for their banks' errors, also saw the balance sheets of indebted nations sink deeper into the red as they took on ever more rescue cash to bail out their financial institutions.The new plan would kick in only once a regional supervisor is established to regulate banks in the 17-nation eurozone - itself a major step that could see regulators based at the European Central Bank override the authority of national governments, bolstering market confidence in the region's financial system. Leaders said they would agree on such a move by the end of the year.In addition, leaders agreed that countries could access bailout funds to buy up their government bonds on open markets - and thus bring down dangerously high borrowing costs - with fewer conditions attached.The compromise reached here Friday fueled new optimism about the region's ability to finally break the diplomatic impasses that have made its debt crisis as much political as economic."We have taken decisions that were unthinkable just some months ago," European Commission President Jose Manuel Barroso said.The breakthrough also signaled a reshaping of Europe's political landscape.German Chancellor Angela Merkel, the frugal East German physicist, had laid down the rules for coping with the crisis through her alliance with Nicolas Sarkozy when he was France's president. But with his successor, the intellectual socialist Francois Hollande, leaning more toward the Italian and Spanish leaders' vision of crisis management, a new three-against-one dynamic took hold here.Backed by the French, Spanish Prime Minister Mariano Rajoy, a conservative who is protective of Spanish pride, and Italian Prime Minister Mario Monti, a sober and highly respected former EU official, resorted to brinksmanship. Both leaders vowed to block a $150 billion growth plan, seen as a centerpiece of the forum, if they did not win major concessions. Against their united front, Merkel blinked."The discussions were hard and tense," Monti said Friday. "But it was worth the effort.""This was not France and Germany arriving with a solution, like in the past," added Hollande. "It was France and Germany, along with others, reaching a solution. That's why it took so long and went so far."

 

Angela Merkel: Big Loser Of Eurozone Showdown

 

Angela Merkel was portrayed across Europe as the big loser of a euro zone showdown in Brussels after the German chancellor was forced to accept the crisis-fighting measures championed by countries struggling with their debts.Newspapers in Spain, Italy and France on Saturday toasted the triumph of their leaders - Mario Monti, Mariano Rajoy and Francois Hollande - in pushing Merkel into a U-turn that would long have been unthinkable.Even German newspapers said Merkel had been made to accept demands for the euro zone rescue fund to be able to inject aid directly into stricken banks from next year and intervene on bond markets to support troubled member states."There's no doubt about it - the chancellor was blindsided at the euro summit," wrote influential columnist Nikolaus Blome of Bild, a daily with 12 million readers.The summit ended on Friday with agreement on new steps to try to prevent a catastrophic breakup of the single currency.Popular at home for insisting on austerity measures and tough conditions for those indebted euro zone states getting help, Merkel was quick to put a positive spin on the summit, telling reporters: "We had an interest in finding solutions."There was no sign that the summit had damaged her reputation on Friday as both houses of parliament voted to back the euro zone's permanent bailout scheme. And Merkel does not face any particular political challenge at the moment.But the concessions of "Frau Nein" were far bigger than earlier compromises in the name of saving the euro."Merkel caves in - money for ailing banks," read the headline on Germany's left-leaning Sueddeutsche Zeitung.Bild wrote: "Italy and Spain got what they wanted: It'll be easier to borrow excessively again... It was the first time in more than two crisis years that euro states didn't follow Germany's orders."Footballing comparisons have been widespread after Italy knocked Germany out of the Euro 2012 tournament in a shock 2-1 victory on Thursday."This time it was worse, the defeat was about the euro," said respected Deutschlandfunk radio.'1-0 TO HOLLANDE'In France, left-leaning daily Liberation had a front page splash showing Hollande and Merkel dressed in their national football shirts with "1-0 to Hollande" over the top. It devoted its first four pages to his summit triumph.Liberation said it was the pressure from Hollande, Monti and Rajoy that made Merkel buckle and accept a growth plan and banking union mechanism. It applauded his negotiating prowess."The night the South made Merkel cave in," was the headline over a Liberation report on the Brussels summit.France's right-leaning daily Le Figaro called Spain and Italy the real winners. "Just like in football, it is thanks to Italy and Spain that the dynamics of the match have changed and that Angela Merkel has been forced back against the wall."Italy's leading daily, Corriere della Sera, captured the euphoric mood in Italy. A front-page cartoon "A super Mario in Brussels too" showed Monti in the triumphant clenched-fists pose of Italy striker Mario Balotelli after his second goal against Germany. The diminutive figures of an annoyed-looking Merkel and a meek-looking Hollande watch him."Italy is not just a great team, it's a great country and it may be good to remember it," the paper wrote, giving credit to Monti for making Italy a leading player in Europe again.Left-leaning daily La Repubblica noted that after four years during which Germany had "dictated both the music and the lyrics" at euro zone summits, three of the four main countries had refused to dance to Merkel's beat."Although the Chancellor retains her undisputed primacy at the heart of the Council, she was forced to listen to them."Spanish newspapers saw a victory too - particularly in the fact that inspectors from the European Union, International Monetary Fund and European Central Bank would not put Spain under the same scrutiny as countries bailed out earlier.But El Mundo noted that as Spain gets support for its troubled banks: "the Men in Black... will be atop the Pyrenees watching over everything we do."In bailed-out Portugal, Publico newspaper mocked Merkel's U-turn, saying: "Nein! Non! No! Yes!".In the northern European countries aligned with Germany in demanding tough measures for indebted countries getting help, Merkel was also identified as the loser with the softening of terms for the most indebted."The southern euro countries are taking the north hostage," wrote Dutch financial daily Het Financieele Dagblad.

NEWS,28.6.2012

Europe's greatest threat

Financial markets slide towards disaster, scarcely pausing to celebrate the "success" of the Greek election or the deal to recapitalise Spanish banks, the euro project is finally revealing its fatal flaw. One country poses an existential threat to Europe – and it is not Greece, Italy or Spain. Every serious proposal to resolve the euro crisis since 2009 – haircuts for bank bondholders, more realistic fiscal consolidation targets, jointly guaranteed eurobonds, a pan-European bailout fund, quantitative easing by the European Central Bank (ECB) – has been vetoed by Germany, and this pattern looks likely to be repeated next week. Nobody should be surprised that Germany has become the greatest threat to Europe. After all, this has happened twice before since 1914. To state this unmentionable fact is not to impugn Germans with original sin, but merely to note Germany's unusual geopolitical situation. Germany is too big and powerful to coexist comfortably with its European neighbours in any political structure ruled purely by national interests. Yet it isn't big and powerful enough to dominate its neighbours decisively, as the US dominates North America or China will dominate the Far East. Wise German politicians recognised this inherent instability after 1945 and abandoned the realpolitik of national interest in favour of the idealism of European unification. Instead of trying to create a "German Europe" the new national goal was to build a "European Germany". Unfortunately, this lesson seems to have been forgotten by Angela Merkel. Whatever the intellectual arguments for or against German-imposed austerity or the German-designed fiscal compact, there can be no dispute about their political import. Merkel's stated goal is now to create a "German Europe", with every nation living, working and running its government according to German rules. Merkel doubtless believes that she is helping Europe when she maternally instructs the Greeks, Italians and Spaniards to "do their homework" and so become good little Germans. But like its less benign predecessors, this effort to impose German hegemony is guaranteed to fail. Europe's leaders must therefore sart considering a previously unmentionable question, perhaps as soon as the current summit, if the euro crisis intensifies. This question is not whether Europe will agree to live under German leadership, but whether Germany will agree to live under EU leadership – or whether the other nations must form a united front against Germany to prevent the destruction of Europe, as they have repeatedly in the past. To be specific, the euro's only chance of survival now depends on a decisive move towards political and fiscal union. Angela Merkel plays lip service to such political union, even claiming that democratic accountability is her main condition for financial rescues; but what she means is accountability to German voters, German newspapers and German constitutional judges. She promises to "do whatever it takes to save the euro" but vetoes anything that might actually work, claiming deference to German public opinion or national interests. Europe must now call this bluff. At the summit, France, Italy and Spain can turn the tables on Merkel by presenting her with an ultimatum. Led by President Hollande, who has abandoned president Sarkozy's Gaullist pretensions of parity with Germany, the big three Mediterranean countries could agree on a programme that really might save the euro: a banking union, followed by jointly issued eurobonds and backed by ECB quantitative easing. If Merkel tried to block these policies, the others could politely invite her to leave the euro, since Germany's political pressures evidently made membership impossible on terms its partners could accept – essentially the proposition Merkel put last month to Greece. Without Germany, the eurozone would have much smaller internal imbalances and much more political coherence, with a much weaker currency and higher inflation, both of which would make debts easier to resolve. Merkel would probably insist on Germany's legal right to remain within the euro, ironically echoing the Greek position. At this point the other nations could play their trump card: to reduce interest rates and make their economies more competitive by weakening the euro, the debtor nations could vote for unlimited bond purchases by the ECB. The Germans on the ECB council would doubtless oppose this, but even with support from Finland, Slovakia, and perhaps Austria and Holland, Germany could command no more than seven votes out of 23. Germany would then face the very same existential choice about its relations with Europe that Merkel has inflicted on Greece and other debtor nations. Germans will almost certainly support the political concessions that might give the euro a chance of survival, including fiscal transfers and some mutualisation of debts, once they realise that their only alternative is isolation from the rest of Europe. But before they agree to a European Germany, voters may need to be reminded that trying to create a German Europe always leads to disaster. 

NEWS,16.01.2012.

                      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.