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Monday, August 27, 2012

Germany and France agree to work together on solution to eurozone crisis

Finance ministers announce working group to integrate policies as German business confidence falls to lowest level since 2010

Germany and France have moved to bury months of squabbling over how to resolve the euro crisis by agreeing to form a joint policymaking body to create a more integrated economic and fiscal policy in the eurozone and structure a new banking supervision regime.

The announcement of the accord in Berlin came as Germany's leading business confidence index showed a greater than expected dip due to fears of the impact of the euro's travails on German exports. It is the fourth month in a row that German business confidence has fallen.

The German and French finance ministers, Wolfgang Schäuble and Pierre Moscovici, said the aim of the new working group was to produce common policies on how to deal with Greece, Spain, and Italy as well as mapping out longer-term strategies. The Germans hope this will conclude in a full-scale political union within the eurozone.

"We want to take joint decisions," said Schäuble, a Christian Democrat of the German chancellor Angela Merkel's party. Moscovici, a French Socialist, said the countries needed to "deepen our consultations".

The eurozone's two biggest economies have been at odds since the election of François Hollande as French president in May. He has sought a policy shift geared to growth and jobs, while Berlin, dominating the EU response to the crisis for almost three years, has emphasised austerity, savage spending cuts, and debt reduction. Monday's announcement was an acknowledgment that eurozone crisis management will be paralysed if the two biggest players remain at loggerheads.

The announcement came as the German headline Ifo index of business sentiment fell in August to its lowest level since March 2010, dropping to 102.3 from 103.3 in July. However, the current assessment component of the index dropped by less than expected, from 111.6 to 111.2.

The Berlin talks kicked off what promises to be a fraught and frantic few weeks in crisis management after the August holiday lull. Policymakers at the European Central Bank (ECB) are to meet next week amid expectations that their president, Mario Draghi, could unveil plans to intervene in the bond markets to try to cap Spain's and Italy's borrowing costs. The following week the European Commission is to reveal new proposals for bank regulation and supervision, likely handing vast new powers to the ECB.

The Franco-German accord came as Spain revealed its ailing economy did worse than thought over the past two years. The country's statistics office said its economy grew by just 0.4%, rather than 0.7%. It also said a recession the previous year shrank the economy by 0.3% rather than 0.1%, meaning Spain's economy has declined by around 4.5% in the four years since a housing bubble burst and the credit crunch hit in 2008.

With economists seeing a further 2% fall in GDP over the next two years, predictions that Spain is in the middle of a lost decade now look to be accurate. The economy will not return to its 2007 size until the second half of this decade.


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German lawmakers say 'Grexit' not just economic risk


AFP

German lawmakers say 'Grexit' not just economic risk
Reuters
By Matthias Sobolewski | BERLIN Aug 27 (Reuters) - Germany's raucous internal debate on whether to keep Greece in the euro zone is too narrowly focused on financial factors and should also weigh up the wider geopolitical risks of a "Grexit", ...
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France's Hollande: Greece Must Take Measures and Show Credibility


France's Hollande: Greece Must Take Measures and Show Credibility
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PARIS--French president Francois Hollande said that while Greece must show its credibility by implementing austerity measures and reforms, Europe must also recognize efforts it has already made and help the country with growth. "Greece must demonstrate ...

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Berlin and Paris forge union over crisis


AFP

Berlin and Paris forge union over crisis
Financial Times
Germany and France have agreed to work together in drafting initiatives to combat the eurozone crisis, a move set to allay fears that the governments of chancellor Angela Merkel and president François Hollande were set on a collision course over ...
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Greek government exits the jet set


Greek government exits the jet set
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Greek government exits the jet set. AP / August 27, 2012. E-mail |; Print |; Reprints |. Text Size: –; +. E-mail. E-mail this article. To: Invalid E-mail address. Add a personal message:(80 character limit). Your E-mail: Invalid E-mail address. Sending ...

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Greece mulls T-bills to bridge extension funding gap-officials


Greece mulls T-bills to bridge extension funding gap-officials
Reuters
ATHENS Aug 27 (Reuters) - Greece estimates that a two-year extension on its bailout would create a financing gap of less than 18 billion euros, which it could cover by issuing short-term debt rather than pleading for more money from lenders, government ...
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Despite Austerity, The Greek Government Is Still Terrified Of Slashing The ...


Business Insider

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Greece is implementing tougher austerity measures than anyone else in the eurozone as they attempt to meet fiscal targets set by international creditors in order to trigger the disbursement of additional bailout funds they need to pay the bills ...

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How Is Samaras Doing? So Far, the Euro Zone Likes the New Greek Leader

There is a lot of hardship ahead but so far Merkel and the Germans like what they hear from the Greek Prime Minister. Will the honeymoon last?

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Greek exit idea sparks German row

German centre-right politicians criticise a leading conservative partner for suggesting that Greece will have to leave the eurozone.

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Greek Parliament to Vote on Measures by Oct. 8, Imerisia Says


Greek Parliament to Vote on Measures by Oct. 8, Imerisia Says
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Greek Parliament to Vote on Measures by Oct. 8, Imerisia Says. By Marcus Bensasson - 2012-08-27T07:11:40Z. Greece's parliament will vote on an 11.5 billion-euro ($14.4 billion) package of budget cuts for the next two years before a meeting of euro area ...

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Poll: Obama, Romney neck-and-neck ahead of party conventions


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Merkel Cautions on Criticism of Greece

Merkel warned senior officials in her ruling coalition to tone down their comments about Greece and the ECB or risk hurting efforts to contain the euro-zone debt crisis.

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Samaras plea for more time rejected

Germany's Economy Minister Philipp Rösler rejected calls yesterday for Greece to get more time to implement economic reforms.



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Dutch Premier Rutte Defends Austerity, Says No to More Greek Aid


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Austria says Greece could get 2-3 extra years


Austria says Greece could get 2-3 extra years
Reuters
Austria sees good chance for Greece to get more time. * Germany emphasises need for reforms, says time is money. * Austrian finmin says no more time without conditions. VIENNA/BERLIN, Aug 26 (Reuters) - Greece should get more time to repay its debts ...


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The German people will decide Europe's fate | Hans Kundnani

Starkly divided opinion in the EU's biggest economy could be as big a threat to the euro as Greek debt

As speculation about a Greek exit from the eurozone continues, Germany is pushing ahead with plans for a new treaty that will transform the European Union.

According to this week's Spiegel, Angela Merkel wants European leaders to agree by the end of the year to hold a constitutional convention in order to fashion a new legal basis for the EU – even though most other member states are opposed to the idea of another tortuous and risky treaty negotiation so soon after the failed European constitution and the Lisbon treaty. The plan could dramatically reshape the EU in Germany's image – or lead to it falling apart.

On Friday Merkel rejected Greece's plea for more time to implement austerity measures while affirming that she still wanted it to remain in the euro. There had been some signs that German anger about Greece had dissipated – Bild published a surprisingly positive interview with the Greek prime minister, Antonis Samaras, last week – but at the same time confidence is growing that a Greek exit from the euro could be contained. Figures such as Volker Kauder, the parliamentary leader of the Christian Democrats, and Philipp Rösler, vice-chancellor and leader of the Free Democrats, the junior partner in Merkel's coalition government, have said they no longer fear a Greek exit.

However, the debate in Germany is now moving beyond Greece towards the question of political union. During the two and a half years since the euro crisis began, Germany's approach has been to seek to impose its own economic preferences on the eurozone. It insisted that all eurozone countries agree to enact an equivalent of the constitutional amendment it passed in 2009, which required it to maintain balanced budgets. Many, including Guardian leader writers, have seen in Germany's approach a kind of economic imperialism. But Germany seems to be coming to the conclusion that it is no longer enough to try to remake the eurozone in Germany's image in economic terms; it must do so in political terms as well.

Although Germany has often been accused of doing too little too late for the eurozone periphery, many Germans think they have already done too much too soon. They perceive a creeping mutualisation of debt, in which they are assuming liability without control – in other words, throwing astronomical sums of money into a bottomless pit without being able to enforce austerity measures or to stop eurozone leaders such as François Hollande from taking steps to change the retirement age, for instance, from 62 to 60. As a result, there has been increasing anger in Germany at the bailouts. (The German constitutional court is expected to rule on the constitutionality of the European Stability Mechanism, the eurozone's €500bn rescue fund, on 12 September.)

Many Germans see the idea of a more extensive and permanent form of debt mutualisation – for instance in the form of eurobonds – as the creation of a "debt union" in which they and other surplus countries would assume unlimited liability for deficit countries' debt while giving up what leverage they have to enforce structural reform. Germany's constitutional court has already ruled that open-ended debt mutualisation of this kind would violate the Basic Law – the federal republic's constitution.

The European summit in June, at which Hollande, along with Italian and Spanish prime ministers Mario Monti and Mariano Rajoy, forced Merkel to allow the ESM to directly bail out troubled eurozone banks, was a turning point in German attitudes to the euro crisis.

In much of the rest of the eurozone – and the world – it was seen as a breakthrough. The summit was, as one economist put it, "the first to agree measures that address the core of the crisis: inflated government borrowing costs that weaken public finances and ultimately make sovereign insolvency self-fulfilling; and a vicious cycle in which worries about bank and sovereign solvency feed on and amplify each other".

In Germany, however, the summit – which took place on the day that Italy knocked Germany out of Euro 2012 – was widely seen as a defeat. From a German perspective, Merkel had given in to demands from the eurozone periphery for even more of their money while weakening the strict conditionality on which Germany had always insisted. It was, according to the Spiegel, "the night Merkel lost". Against this background, there are now calls for a referendum – the buzzword of the summer in Germany – to replace the Basic Law with a new constitution.

Supporters of "more Europe", such as Jürgen Habermas, would use the process to argue for changes that could overcome the limitations set by the courts on debt mutualisation. Their opponents would see it as a chance to block further European integration.

Even with Merkel's plan to accelerate the timetable for a new treaty, there is a big question mark over whether an as yet undefined form of political union can be agreed quickly enough to save the euro. Just as Germany has sought to impose its economic preferences on the rest of the eurozone, it is now also likely to seek to impose its political preferences, based on the lessons it has drawn from its own history. In other words, it will seek to reshape Europe as a larger version of its own federal system, which has a relatively weak executive constrained by strict rules and a strong parliament and judiciary.

However, even if it is successful in doing this, it is by no means clear that the German people would vote in favour of accepting full liability for eurozone debt. Influential figures such as economist Otmar Issing are opposed to political union, and some polls suggest a majority of Germans are opposed to further integration and even want Germany to leave the euro altogether.

What some in Germany see as a way to enable "more Europe" may turn out to be the catalyst for the disintegration of the EU.


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