Angela Merkel ‘astonished’ by austerity debate as Germany left increasingly isolated on eurobonds
The German Chancellor said that the current debate in Europe and beyond “gives the impression that, for us, saving, as such, is pleasurable”.
“It’s just about not spending more than you collect. It’s astonishing that this simple fact leads to such debates,” she said in a speech in Berlin.
Germany has repeatedly insisted that indebted eurozone nations including Greece and Spain must impose sweeping austerity programmes to get their finances under control, while France, Italy, the International Monetary Fund and the Organisation for Co-operation and Development are now stressing the need for pro-growth measures.
Germany again stressed its deep opposition to the idea of pooling eurozone sovereign debt through the introduction of eurobonds, which are supported by those in the pro-growth camp and Britain.
Michael Meister, a member of Ms Merkel’s Christian Democratic Union party, said there was nothing to stop France and Italy from going it alone on common bonds….
Italian Consumer Confidence Falls to Lowest Since 1996
Merkel Heads for Debt Showdown With Hollande at EU Summit
Germany and France, the biggest euro economies, are headed for a showdown at tomorrow’s European Union summit over their views on how to stem a debt crisis that threatens the single currency’s survival.
German Chancellor Angela Merkel said she won’t shy away from disagreeing with French President Francois Hollande at the summit in Brussels over dinner at 7 p.m., the next major appointment of leaders seeking to allay concerns that Greece may quit the euro, putting Spain and Italy at risk as well.
Good cooperation “doesn’t exclude differing positions,” Merkel told reporters yesterday in Chicago during a meeting of the North Atlantic Treaty Organization. “These may very well arise in the context of the European discussions.”
While Franco-German collaboration has been a cornerstone of post-World War II policy making, Merkel and Hollande, France’s first Socialist president in almost two decades, have gotten off to a rocky start in a relationship that needs to work to spur economic growth and prevent Greece from leaving the euro area.
President Barack Obama, facing re-election in November, has prodded his European counterparts by highlighting the stakes. He hosted a Group of Eight meeting near Washington followed by the NATO summit in Chicago.
“What happens in Greece has an impact here in the United States,” Obama told reporters yesterday. “Businesses are more hesitant to invest if they see a lot of uncertainty looming across the Atlantic because they’re not sure whether that’s going to mean a further global slowdown.”…
European Banks Unprepared for Greek Exit From Euro
Europe’s banks, sitting on $1.19 trillion of debt to Spain, Portugal, Italy and Ireland, are facing a wave of losses if Greece abandons the euro.
While lenders have increased capital buffers, written down Greek bonds and used central-bank loans to help refinance units in southern Europe, they remain vulnerable to the contagion that might follow a withdrawal, investors say. Even with more than two years of preparation, banks still are at risk of deposit flight and rising defaults in other indebted euro nations.
“A Greek exit would be a Pandora’s box,” said Jacques- Pascal Porta, who helps manage $570 million at Ofi Gestion Privee in Paris, including shares in Deutsche Bank AG (DBK) and BNP Paribas SA. (BNP) “It’s a disaster that would leave the door open to other disasters. The euro’s credibility will be weakened, and it would set a precedent: Why couldn’t an exit happen for Spain, for Italy, and even for France?”
The prospect of Greece leaving the 17-nation euro region increased after parties opposed to the terms of the nation’s second bailout by the European Union and the International Monetary Fund won most of the votes in May 6 elections. A fresh round of voting will be held June 17 after politicians failed to form a government. For the first time since the crisis began in November 2009, European leaders and central bankers are speaking openly of Greece abandoning the currency union.
The immediate risk for Europe’s banks, and for the euro region, would be a deposit flight from indebted nations such as Portugal, Ireland, Spain and Italy on speculation those countries also might quit the currency. Lenders in Germany, France and the U.K. had $1.19 trillion of claims on those four nations at the end of 2011, Bank for International Settlements data show.
Should Greece go, its new currency probably would suffer an immediate devaluation of as much as 75 percent against the euro, forcing individuals and companies to default on foreign loans, economists at UBS AG (UBSN) said. Unless European leaders could make a credible case that a Greek exit was an exceptional and isolated incident, depositors in other nations might decide to withdraw euros from banks or shift them to countries seen as safer.
“The highest risk facing the banks at the moment is the possibility of deposit runs,” said Andrew Stimpson, a banking analyst at Keefe, Bruyette & Woods Ltd. in London. “The more policy makers continue to openly discuss an exit, the more likely that people in Spain, Ireland and Portugal pull money out of their local banks.”…
Bundesbank says Greek euro exit “manageable”
(Reuters) – The impact of a Greek exit from the euro zone would be substantial but “manageable”, Germany’s Bundesbank said on Wednesday, raising pressure on Athens to keep its painful economic reforms on track.
In a toughly worded monthly report, the German central bank also said euro zone member states should have a say on further payments of aid to Greece under its 130 billion euro bailout program funded by the IMF and the European Union.
“Greece is threatening not to implement the reform and consolidation measures that were agreed in return for the large-scale aid programs,” the Bundesbank said.
“This jeopardizes the continued provision of assistance. Greece would have to bear the consequences of such a scenario. The challenges this would create for the euro area and for Germany would be considerable but manageable given prudent crisis management.”
Echoing German political leaders, the Bundesbank warned against Europe easing the conditions for Greece to access aid.
“A significant dilution of existing agreements would damage confidence in all euro area agreements and treaties and strongly weaken incentives for national reform,” it said.
Greece holds a second election on June 17 after a previous poll produced a parliament split between supporters and opponents of the bailout program, which requires Athens to make deep spending cuts and hike taxes.
Anti-bailout parties are expected to repeat their strong performance, opinion polls show, increasing the risk that Greece will renege on its austerity pledges, default on its debt and possibly leave the single currency.
The Bundesbank said the Eurosystem of euro zone central banks had assumed “considerable risks” by providing Greece with large amounts of liquidity.
“In light of the current situation, it should not significantly increase these risks,” the bank said.
“Instead, the parliaments and governments of the member states should decide on the manner in which any further financial assistance is provided and therefore whether the associated risks should be assumed.”
German Finance Minister Wolfgang Schaeuble reiterated on Wednesday Berlin’s insistence that Greece take its austerity medicine in order to regain competitiveness and resume growth.
“The Greek people must install a competent government,” he told German radio. “(The austerity measures) are agreed not because we want to punish the Greeks but because they are necessary.”
The Bundesbank said in its report that it would be crucial to phase out the euro zone’s non-standard monetary policy measures in the future, to contain the risks arising from them such as distorting competition in the banking sector or inciting the delaying of structural reforms.
The Bundesbank said Germany’s economic upswing would continue in the second quarter, driven by construction and consumption, while the manufacturing sector would “probably only make a comparatively small contribution”.
“In light of all this, calls on German fiscal policymakers to loosen their fiscal policy stance in order to stimulate the economy appear inappropriate,” the bank said.
“Attempting to kick-start the economy in the short term and putting off consolidation efforts in the long term are not conducive to regaining lost confidence.”
This week, the Paris-based Organisation for Economic Co-operation and Development (OECD) raised its growth forecast for Germany this year to 1.2 percent and to 2.0 percent in 2013 on the back of strong domestic demand and a buoyant labor market in Europe’s largest economy.