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World Markets Boosted by China, German Exports

January 9, 2012 by Leave a Comment

LONDON (AP) — European markets were steady Monday ahead of a meeting between the leaders of France and Germany on how to restore confidence in the euro, while Chinese shares surged after the country’s monetary authorities pledged to increase bank lending to entrepreneurs.

Investors will likely focus this week on Europe’s efforts to deal with its debt market turmoil. The meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel is their first of the year and investors will want to see how the “fiscal compact” agreed in December is being fleshed out.

All EU countries but Britain agreed at the time to consider a new treaty to enforce tougher budget controls by March this year.

“This is set to be the first of a number of meetings between the two leaders over the coming days and weeks, and markets will be hoping that the one eyed insistence on budget discipline by Angela Merkel also gives way to looking at practical measures to stimulate growth in Europe,” said Michael Hewson, markets analyst at CMC Markets.

Mounting evidence that the eurozone is heading for a recession has weighed on European markets over the past days. On Monday, the latest data showed German industrial production fell in November, suggesting even the richer countries are feeling the pinch.

Fears of default have already pushed Greece, Ireland and Portugal to need bailouts are now threatening much-bigger Spain and Italy. The yield on Italy’s benchmark ten-year bonds on Monday continued to hover around the 7 percent mark, widely considered to be unsustainable in the long-run.

After a perky start to the year, market sentiment has deteriorated again due to concerns about Europe’s ability to solve its debt problems.

On Monday, Germany’s DAX was down 0.2 percent at 6,044 while the CAC-40 in France rose 0.2 percent to 3,142. The FTSE 100 index of leading British shares was flat at 5,649.

The euro, which last week took a battering on fears over both the debt crisis and the likelihood that the eurozone economy is heading toward recession, recovered some ground, trading 0.8 percent higher at $1.2780. Earlier, during Asian trading hours, it had fallen to a 16-month low of $1.2676.

Wall Street was poised for a subdued opening after a lackluster response to strong U.S. jobs numbers last Friday. Dow futures were up 0.1 percent at 12,319 while the broader Standard Poor’s 500 futures were flat at 1,274.

Earlier in Asia, Chinese shares in Hong Kong and the mainland jumped sharply following a weekend government planning conference during which Premier Wen Jiabao promised to channel lending to entrepreneurs who have been battered by weak global demand.

China tightened lending and investment curbs last year to cool its overheated economy but has reversed course in recent months following a slump in global demand that has hurt exporters and led to job losses.

Hong Kong’s Hang Seng index jumped 1.5 percent at 18,865.72. The benchmark Shanghai Composite Index gained 2.9 percent to 2,225.89, while the Shenzhen Composite Index gained 3.7 percent. Elsewhere, South Korea’s Kospi fell 0.9 percent to 1,826.49. In Japan, financial markets were closed for a public holiday.

Trading in the oil markets was fairly subdued, with benchmark crude for February delivery down 36 cents at $101.23 a barrel in electronic trading on the New York Mercantile Exchange.

____

Pamela Sampson in Bangkok contributed to this report.

Article source: http://feeds.nytimes.com/click.phdo?i=08b94c20c94b74849c888c73d5ede0a3

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News Analysis: European Debt Deal May Not Be a Cure

December 12, 2011 by Leave a Comment

At least four major issues still need to be resolved: how much money is needed to protect Italy now from speculative attack; whether banks will stumble because of the crisis; the isolation of Britain, which does not belong to the euro zone; and not least, whether the Brussels cure, prescribed by Germany, fits the disease.

With mounds of European debt due to be refinanced early next year, the crisis is far from over. “More tests will obviously come, and soon,” perhaps as early as the opening of financial markets on Monday, said Joschka Fischer, the former German foreign minister.

And there are risks remaining even in getting the Brussels deal ratified, which is likely to take until late summer 2012 at the soonest.

The European stock markets had slipped by midmorning on Monday and, in a potentially ominous sign, Moody’s Investors Service said it could downgrade the sovereign ratings of some European Union countries in coming months, adding that the crisis remained at a “critical and volatile stage.”

The agreement, under which the 17 countries that use the euro accept more oversight and control of national budgets by the European Union, “was a big step, which was pushed on the Europeans by the markets,” Mr. Fischer said. He has been sharply critical of what he considers Chancellor Angela Merkel’s hesitant, slow and incremental management of the crisis, but he said that “in the end, the markets have limited the options of the political leaders, especially of Merkel, and pushed her into giving more support for the euro.”

Germany got nearly unanimous agreement on a treaty to pursue its favored remedy for the sovereign-debt crisis that has shaken the union for months: fiscal discipline, central oversight and sanctions on countries that break the rules about debt limits, which will be written into national laws. The rules themselves are not new: they recap the ceilings set in Maastricht 20 years ago when the euro was created, with deficits limited to 3 percent of gross domestic product and cumulative debt eventually held to 60 percent of G.D.P. Now, though, those formulas will have teeth.

The idea is that, with the new fiscal discipline in place, the Germans and the European Central Bank will be willing to do more to solve the euro zone’s troubles.

But many argue that the core problem is less discipline than the lack of economic growth and the deep current-account imbalances — exporters versus importers — within the euro zone. Austerity tends to bring recession, not growth, and Europe needs growth to cope with its debt. But structural changes and investments to accelerate growth and competitiveness generally take years to bear fruit.

“The relationship between 3 percent and fiscal vulnerability is a weak one,” said Jean Pisani-Ferry, director of Bruegel, an economic research institution in Brussels. Both Spain and Ireland have run balanced budgets, or even budget surpluses, in recent years, and both were well within the Maastricht criteria, but became speculative targets in the credit crisis anyway; Italy has one of the lowest budget deficits in the euro zone, and runs a primary surplus, meaning that its budget is in the black when debt service is discounted.

“The countries were not in crisis because of bad management of their budget,” said Jean-Paul Fitoussi, professor of economics at the Institute of Political Studies in Paris. He called the Brussels deal “rather disappointing over all, since it means that there will be more rigor, more austerity, which means less growth ahead.”

The issue is how to promote economic growth and competitiveness in the poorer countries at the euro zone’s periphery that ran up large debts and trade deficits. “You need discipline as part of your stabilization strategy, but we also need a much stronger growth strategy for the southern countries,” including Italy, Mr. Fischer said.

Bernard Avishai, a contributing editor of the Harvard Business Review, said that the questions now should be: “Under what scenarios are the southern economies most likely to grow? Who will be starting, owning and profiting from what businesses? In that context, would not Spain, Portugal, Greece, et cetera, be better off with their own currencies? Would they not become more competitive if they could simply devalue them?”

His answer to that last question is no: A globalized, networked economy requires a stable currency, he said. Inside the euro or out, he said, the real competitors for countries like Greece and Portugal are Poland, Hungary and Romania, and to thrive they need to remain part of the European economic space and invest in education and high technology to attract more capital from abroad.

“The path to development is not devalued money in the hinterland, but intellectual capital from the metropole,” Mr. Avishai said. “The key is not cheap labor but rich brainpower, the climate that will cause globals to inject the DNA of various businesses into the commercial life of southern European states.”

Steven Erlanger reported from Vienna, and Liz Alderman from Paris. Maïa de la Baume and Scott Sayare contributed reporting from Paris, and Alan Cowell from London.

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Economix Blog: Pay for Our Mistakes? Not Us

December 9, 2011 by Leave a Comment

It is nice to have the power to never have to pay for your errors. To get that kind of clout, you have to have a credible threat to make the rest of the world miserable if you are inconvenienced.

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

Financial markets have that power, as we learned in 2008. The decision to allow Lehman Brothers to fail stunned Wall Street, and a credit crisis took down the world economy. In the aftermath, lenders to other banks, even those that failed, were not forced to suffer losses.

The decision to allow Lehman to fail seems to have had at least some ideological component. It isn’t capitalism if you can’t fail. But practicality prevailed thereafter.

This year, the decision to force private lenders to take 50 percent haircuts on loans to Greece was promptly followed by plunging prices on Spanish and Italian bonds. It was Angela Merkel, the German chancellor, who led the charge for making the banks pay, for similar reasons to the ones heard when Lehman went down. Now Europe is contemplating huge capital shortfalls for its banks, and Ms. Merkel has backed down.

Bloomberg reports:

“As regards private-sector involvement, we have made a major change in our doctrine: from now on we will strictly adhere to the I.M.F. principles and doctrines,” EU President Herman Van Rompuy told reporters at a briefing. “Or, to put it more bluntly, our first approach to P.S.I., which had a very negative effect on debt markets, is now officially over.”

The I.M.F. — the International Monetary Fund — tells me that those policies and doctrines provide for no automatic losses for the private sector, but do not rule them out either. Instead, there is to be a case-by-case analysis. William Murray, the I.M.F. spokesman, says this 2010 program for Jamaica is the most recent one, other than Greece, where private lenders did take haircuts.

So you could say that there really is no promise to spare the banks. But I suspect the reality is that the recent experience has traumatized Europe enough that it will be a very long time before anyone suggests that banks should suffer for foolish lending to a member of the European Union.

Article source: http://feeds.nytimes.com/click.phdo?i=fb605f7c6e080c5d239647b8a6d21f46

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Tiny Tax on Financial Trades Gains Advocates

December 6, 2011 by Leave a Comment

And like the mythical hero of Sherwood Forest, it is beginning to capture the public’s imagination.

Driven by populist anger at bankers as well as government needs for more revenue, the idea of a tax on trades of stocks, bonds and other financial instruments has attracted an array of influential champions, including the leaders of France and Germany, the billionaire philanthropists Bill Gates and George Soros, the consumer activist Ralph Nader, Pope Benedict XVI and the archbishop of Canterbury.

“We all agree that a financial transaction tax would be the right signal to show that we have understood that financial markets have to contribute their share to the recovery of economies,” the chancellor of Germany, Angela Merkel, told her Parliament recently.

On Sunday, Mario Monti, the new prime minister of Italy, announced plans to impose a tax on certain financial transactions as part of a far-reaching plan to fix his country’s budgetary problems, and he endorsed the idea of a Europe-wide transactions tax.

So far, the broader debt crisis engulfing the euro zone nations has pushed discussion of the tax into the background. But if European leaders can agree on a plan that calms the financial markets, they would be in a stronger position to enact a levy, analysts said.

“There is some momentum behind this,” said Simon Tilford, chief economist of the Center for European Reform in London. “If they keep the show on the road, they probably will attempt to run with this.”

The Robin Hood tax has also become a rallying point for labor unions, nongovernmental organizations and the Occupy Wall Street movement, which view it as a way to claw back money from the top 1 percent to help the other 99 percent. Last month, thousands of demonstrators, including hundreds in Robin Hood outfits with bright green caps and bows and arrows, flooded into southern France to urge the leaders of the Group of 20 nations to do more to help the poor, including passing a financial transactions tax.

Enacting such a tax still faces many hurdles, however — most notably, skepticism from leaders in the United States and Britain, home to some of the world’s most important financial exchanges.

The day after the Robin Hood protest, for example, Mr. Gates, the chairman of Microsoft and one of the world’s wealthiest men, presented a report to a closed-door meeting of the G-20 leaders that laid out his ideas on how rich countries could aid poor ones. One of his proposals was a modest tax on trades of financial instruments that could generate $48 billion or more annually from the G-20 countries.

Ms. Merkel and France’s president, Nicolas Sarkozy, quickly piped up, enthusiastically endorsing the tax. But Britain’s prime minister, David Cameron, expressed serious reservations, saying Britain would embrace it only if it were adopted globally. British officials fear that unless the tax is worldwide, trading will flee London’s huge markets to countries with no tax.

The Obama administration has also been lukewarm, expressing sympathy but saying it would be hard to execute, could drive trading overseas and would hurt pension funds and individual investors in addition to banks.

Administration officials say they would prefer a tax on the assets of the largest banks as a way to discourage them from risky activities. “The president is sympathetic to the goals that a financial transactions tax is trying to achieve and he is pushing for a financial crisis responsibility fee and closing other Wall Street loopholes as the best and most feasible way to achieve those goals,” an administration official said.

Still, support is growing for the idea, which has been largely dormant since the 1970s, when a version was first proposed by the economist James Tobin, later a Nobel Prize winner.

“The tax is a good idea because banks are where the money is. It’s the same reason Jesse James robbed banks,” said Rose Ann DeMoro, executive director of National Nurses United, which recently held demonstrations at the offices of 60 members of Congress in support of the levy. “The thing about the financial transactions tax is it’s stunning how quickly people get it and how fast they embrace it.”

Labor groups like the nurses’ union and the A.F.L.-C.I.O. see the tax as a way to finance job creation programs to fight high unemployment in the United States and Europe.

Article source: http://www.nytimes.com/2011/12/07/business/global/micro-tax-on-financial-trades-gains-advocates.html?partner=rss&emc=rss

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Global Stocks Climb After Merkel Reiterates Support for Euro

December 2, 2011 by Leave a Comment

Also Friday, the German chancellor, Angela Merkel, reiterated her strong support for the euro, a move that helped bolster European stocks.

The American unemployment rate fell to 8.6 percent, after having been stuck around 9 percent for most of 2011, the Labor Department said.

The Standard Poor’s 500-stock index rose 0.7 percent in early trading, while the Dow Jones industrial average gained 0.6 percent and the Nasdaq composite index added 0.6 percent.

In Europe, the Euro Stoxx 50 added 1.5 percent by late afternoon. The FTSE 100 in London rose 1.1 percent and the DAX in Frankfurt increased 0.9 percent.

Mrs. Merkel told the German Parliament in a speech Friday that the future of the euro was time to fix the “mistakes of construction” in the euro zone.

Closer fiscal ties might also help to reduce German reticence toward jointly issued euro-bonds and a more active bond-buying by the European Central Bank, two steps that are also widely regarded as necessary for saving the currency.

“Mrs. Merkel is saying very clearly that she’s moving toward acceptance of euro bonds,” David Thébault, head of quantitative sales trading at Global Equities in Paris, said. “But in return she wants fiscal union.”

“Things have really advanced in Europe since last weekend,” Mr. Thébault said. “Germany and France are imposing budgetary rigor, and the E.C.B. has responded by becoming more accommodating.”

Asian shares were mostly higher. The Tokyo benchmark Nikkei 225 stock average rose 0.5 percent, while the Sydney market index S.P./ASX 200 rose 1.4 percent. In Hong Kong, the Hang Seng index added 0.2 percent.

But the Shanghai composite index fell 1.1 percent.

Nicholas Kulish contributed reporting from Berlin.

Article source: http://feeds.nytimes.com/click.phdo?i=661d2dee05494c9daeff14e9b48245f3

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Haunted by ’20s Hyperinflation, Germans Balk at Euro Aid

December 2, 2011 by Leave a Comment

Now, Mr. Schulze, a 56-year-old auto mechanic, says runaway inflation looms again, threatening to decimate his savings and turn his carefully planned retirement into abject poverty. It is not so much the ghost of the 1920s that he fears, but the vocal demands around Europe and abroad for a “big bazooka” of public money to reassure markets and help European countries in heavy debt.

“I’m worried about my pension and my savings and the problems we’re facing right now,” Mr. Schulze said.

Many economists say aggressive purchases of the sovereign bonds of heavily indebted states by the European Central Bank are the quickest and surest path to stabilizing the crisis. On Thursday, Mario Draghi, the bank’s president, laid the groundwork for bolder intervention in markets if certain conditions were met.

To German ears those bond purchases, or anything that smacks of printing money, sound like a recipe for skyrocketing prices. German leaders, including Chancellor Angela Merkel and her former economic adviser, Jens Weidmann, now head of the German Bundesbank, have strongly discouraged any such move by the European Central Bank, stalling the rescue of the euro zone in the view of critics.

The prospect of a dim historical memory — the antique photograph of the wheelbarrow full of nearly worthless bills — helping to drive the world off the economic precipice and into another deep recession may seem like the height of irrationality and even irresponsibility.

But the German obsession with inflation has been difficult to overcome because Germans perceive themselves as more vulnerable to inflation today than their neighbors are. It is a force they believe could reduce or wipe out the competitive and financial edge they have labored to build.

By robbing a currency of its value, inflation wipes the slate clean for debtors and savers alike. Germans say they like the slate the way it is because they are on the plus side of the ledger.

Consumer debt, whether credit cards or in many cases even home mortgages, is frowned upon here. According to figures of the Organization for Economic Cooperation and Development, the German savings rate was more than 10 percent every year between 2003 and 2009, while during the same period it bottomed out at 1.5 percent in the United States, and never rose above 6.2 percent. As a result German households had net savings of $4.3 trillion, according to the Bundesbank, in a country of fewer than 82 million people.

Germans own homes at a lower rate, 41.6 percent, than the 66.3 percent of Americans who do. And most people do not invest in the stock market here.

“For the average American, inflation means the home price is increasing and the value of debt is going down,” said Peter Bofinger, a prominent economist on Mrs. Merkel’s independent council of economic advisers, “whereas the German invested in life insurance and sitting in an apartment he rented is much more vulnerable to inflation.”

Fear of inflation is a deep and broad consensus in Germany, but one that Sebastian Dullien, an economist and senior policy fellow at the European Council on Foreign Relations, said had worsened appreciably in recent years. “It is not about the 1920s,” Mr. Dullien said. “The fear of inflation went up when wages stopped going up.”

In an effort to regain lost competitiveness over the past decade, Germany went through a period of wage restraint and labor-market reforms that made the hiring and firing of workers easier and welfare benefits less generous. While countries on Europe’s southern edge, including Greece and Portugal, were enjoying the cheap money that came with membership in the euro, Germans were developing a newfound sense of economic insecurity, one that paired all too effectively with an old dread.

Article source: http://feeds.nytimes.com/click.phdo?i=de1e9c9c1a804d1cbaac4bd38cf3e999

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European Central Bank Chief Suggests Broader Rescue Is Possible

December 2, 2011 by Leave a Comment

In the run-up to a meeting of European leaders late next week, Mr. Draghi’s remarks seemed to be part of a larger effort by the bank and the region’s biggest economic powers — Germany and France — to lay the foundation for a broader rescue without seeming to compromise their principles.

Later in the day Thursday, the French president, Nicolas Sarkozy — acknowledging the region’s debt crisis — announced that he and the German chancellor, Angela Merkel, would meet in Paris on Monday “to make French-German propositions to guarantee the future of Europe.”

Last weekend, Germany and France began floating a plan to hold member nations of the euro currency union more financially accountable to their fellow members by giving European Union officials the power to vet and approve their national budgets. Euro zone agreement to such a proposal is seen as a possible precondition to increased financing by the central bank, to which Germany and France are the biggest contributors.

Mr. Draghi, in the manner of central bankers, made no explicit promises on Thursday. And the quid pro quo he offered governments was indirect. But his remarks illuminated how the bank might answer increasingly desperate calls for the bank to escalate its intervention in bond markets without violating its own mandate or alienating Germany, where opposition to a central bank bailout of Greece or Italy continues to run deep.

Speaking to the European Parliament in Brussels, Mr. Draghi stopped well short of offering a European version of the sort of large securities purchases that the United States Federal Reserve has used to try stimulating the American economy.

But he seemed to be saying that the bank would use its virtually unlimited resources to keep financial markets at bay, if government leaders in the euro region agreed to do their part by addressing the structural flaws that had allowed the debt problems of Greece to mutate into a threat to the global economy.

“What I believe our economic and monetary union needs is a new fiscal compact,” Mr. Draghi said. “It is time to adapt the euro area design with a set of institutions, rules and processes that is commensurate with the requirements of monetary union.”

After government leaders take steps to improve the way the euro area is managed, “other elements might follow,” Mr. Draghi said. European leaders will hold a summit meeting on Dec. 9, which is now seen as the latest deadline — there have been many during the nearly two-year debt struggle — for stemming the crisis.

Europe appeared to have bought a bit more time on Wednesday, when the Federal Reserve, the central bank and four other national central banks agreed to free up more dollar lending to European banks. But the stock market rally that followed that move did not carry over to Thursday — although successful government bond auctions in Spain and France did indicate at least a temporary calm in the debt storm.

By insisting that greater action would depend on rules to enforce spending discipline among euro members, Mr. Draghi might at least partly address German concerns that greater central bank action would reward countries that have mismanaged their finances and violate a prohibition against financing governments.

“Mr. Draghi appeared to be holding up the possibility of a greater degree of E.C.B. intervention if euro area governments were to commit, at next week’s key E.U. summit, to a tougher set of fiscal rules,” analysts at Barclays Capital said in a research note.

After insisting for weeks that the central bank is not authorized, under the European Union treaty, to bail out national governments, Mr. Draghi on Thursday hinted at how the treaty mandate might nonetheless let the central bank to do just that. He noted that the mandate required it to ensure price stability “in either direction.”

David Jolly contributed reporting from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=0a14c59de1c2ae35c0574c5564ba2d26

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Merkel, Sarkozy and Monti Meet to Try to Stem Crisis

November 24, 2011 by Leave a Comment

STRASBOURG, France (AP) — French President Nicolas Sarkozy says that France and Germany will propose changing EU treaties to improve governance of the eurozone.

Sarkozy spoke after meeting with German Chancellor Angela Merkel and Italian Prime Minister Mario Monti on Thursday, their first meeting since Monti took over amid market panic over Italy’s huge debts.

Sarkozy said that the three are committed to saving the shared euro currency.

France had been reluctant to make any changes to eurozone governance via treaty changes, something Germany had supported.

But Sarkozy said Thursday that France and Germany would present “propositions for the modification of treaties” in the coming days.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

STRASBOURG, France (AP) — The role of the European Central Bank in stemming Europe’s crippling debt crisis will likely figure prominently in discussions later Thursday between the leaders of Germany, France and Italy.

It’s the first time Italy’s new prime minister, Mario Monti, is meeting German Chancellor Angela Merkel and French President Nicolas Sarkozy since he took charge last week in the wake of growing market concerns over the size of his country’s debts.

The meeting in Strasbourg, France comes amid signs that even Germany and France — the eurozone’s two biggest economies — are not immune from the debt crisis that’s already seen three relatively small countries bailed out.

A failed German bond auction on Wednesday and another warning that France may see its cherished triple A credit rating downgraded, form the uncomfortable backdrop to the discussions between the three leaders.

Though German and French borrowing rates are well below the 7 percent level that eventually forced Greece, Ireland and Portugal into seeking financial bailouts, they have been rising markedly in recent days. Germany’s ten-year yield has ratcheted up around 0.25 percentage point over the past 24 hours since the auction to stand at 2.12 percent, while France’s has been rising steadily in recent weeks to 3.6 percent on Thursday.

Italy’s though have hovered around the 7 percent level for a couple of weeks now, and that’s a real cause for concern for the eurozone as the current bailout facilities are not big enough to bailout the eurozone’s third-largest economy. Italy’s debts stand at around euro1.9 trillion ($2.5 billion), or around 120 percent of the country’s national income.

The meeting is aimed at “showing support for Mario Monti and his policy of reforms,” French government spokeswoman Valerie Pecresse said Wednesday.

However, a big element of the discussions are expected to center on the European Central Bank’s role, which many think is the only institution capable of calming frayed market nerves. Potentially, the ECB has unlimited financial firepower through its ability to print money.

While Germany finds the idea of monetizing debts unappealing, Sarkozy’s government has been pushing for the ECB to play a more active role.

France has repeatedly been frustrated in its push for the ECB to play a greater role in resolving the crisis by Merkel’s fierce opposition. France’s finance minister, Francois Baroin, has raised the possibility of allowing the ECB to act as lender of last resort to financially troubled countries locked out of lending markets by the punishingly high interest rates increasingly demanded by bond market investors.

Merkel also clashed with the head of the European Union on Wednesday over another proposed solution to the European crisis — common bonds issued by all 17 nations that use the euro currency.

A European bond could promote stability in the markets. But Merkel said it would not solve “structural flaws” with the euro, and, in a testy exchange, an EU official said Merkel was trying to cut off the debate before it could even start.


Article source: http://www.nytimes.com/aponline/2011/11/24/business/AP-EU-Europe-Financial-Crisis.html?partner=rss&emc=rss

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Rome Gets New Respect at European Union

November 22, 2011 by Leave a Comment

BRUSSELS — They may not have been the exact words José Manuel Barroso used during a lunch with the new Italian prime minister, Mario Monti, on Tuesday, but the message was clear: Welcome back to Europe’s top table.

After years of tolerating the leadership of the flamboyant, populist, scandal-prone Silvio Berlusconi, there was no concealing the warmth of the welcome Mr. Barroso, the European Commission president, had for Mr. Monti, the cerebral, pro-Europe professor who succeeded Mr. Berlusconi.

It is a sentiment sure to be echoed Thursday when the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, roll out the red carpet for Mr. Monti at a meeting of the three leaders in Strasbourg.

Beyond the personality politics, the hope is that financial markets will notice the depth of European support for Italy now that a technocrat they trust has taken charge.

“He has my full confidence and high personal esteem,” Mr. Barroso said of Mr. Monti after their lunch Tuesday. “Mario Monti has the authority to guide Italy through this difficult moment.”

From Rome’s point of view, the arrival of Mr. Monti represents a chance to extend Italy’s influence and broaden out the French-German duopoly that has long dominated European Union politics.

“Even for France and Germany this would be good — objectively,” said Roberto Menotti, the senior research fellow at the Aspen Institute Italia.

The warmth contrasts sharply with a meeting in September between Mr. Barroso and Mr. Berlusconi in Strasbourg, in which the two politicians tellingly did not hold a joint press conference.

At the time the Italian media suggested that Mr. Berlusconi had only wanted to see Mr. Barroso to avoid appearing in court in Italy where he was involved in several legal cases.

Whether the welcome will last depends on Mr. Monti’s success in stabilizing Italy’s dire financial situation and cutting debt levels that have reached 120 percent of gross domestic product.

“Debt reduction is the name of the game,” said Fabrizio Saccomanni, the director general of the Bank of Italy, during a speech Tuesday in Paris. “We will have to find a way to recover in the least destabilizing fashion.”

Mr. Saccomanni indicated that the effectiveness of the Italian government had been questionable for several years because of showmanship, though he did not mention Mr. Berlusconi by name.

He dismissed the idea that Italy’s technocratic government led by Mr. Monti lacked democratic legitimacy, a point some commentators have made as they questioned the new government’s ability to push through austerity measures.

In Brussels, Mr. Monti said Tuesday that his government was focused on fiscal discipline and bolstering economic growth.

As a former member of the European Commission, the E.U.’s executive arm, Mr. Monti knows better than most that Italy, which was a founder member of the bloc that is now the European Union, has often punched below its weight, hampered by its fractious domestic politics.

E.U. leaders had long tired of Mr. Belusconi’s antics at their meetings. (At a summit meeting in 2003, for example, Mr. Berlusconi declared, “Let’s talk about football and women” before turning to the German chancellor at the time, Gerhard Schröder, who had been married four times, and suggesting he take up the conversation.)

Mr. Sarkozy and Mrs. Merkel this month had privately urged Italy’s president, Giorgio Napolitano, to put Mr. Monti in the prime minister’s job, according to a former top-ranking Italian government official who spoke on the condition of anonymity.

A professor and a regular on the Brussels research group circuit, Mr. Monti was picked by Mr. Barroso last year to write a report on the E.U.’s single market.

He not only speaks his native Italian and fluent English and French. His euro-speak is also strong.

“My vision of Europe is very much in line with Italy’s traditional vision,” he told reporters Tuesday, mentioning the “community method” — E.U. jargon for an approach that advocates the role of E.U. institutions rather than cooperation at the national government level.

Yet ultimately, Italy’s success or failure in combating its economic crisis will determine whether it stops being the problem child and, instead, attains new influence in Europe.

Mr. Saccomanni blamed political inaction at all levels for spread of the euro crisis to core members like France. “Now it is a planetary problem,” he said.

While acknowledging Italy’s high public debt and low economic growth, Mr. Saccomanni argued that fiscal discipline, low private debt, the lack of a real estate bubble and limited foreign debt offset those weaknesses.

Nonetheless, concern is mounting about the health of Italian banks, which have been affected by the sovereign debt crisis. Yields on Italy’s 10-year government bonds, which had spiked above 7 percent this month, traded at 6.79 percent on Tuesday. It is a level that unsettles markets, as it makes borrowing costs difficult to sustain.

While the high yields increase Italy’s cost of servicing its debt, Mr. Saccomanni said they would push Italy over the brink only if the yields remained at those high levels for the next seven years, a trend he said was unlikely.

Still, some of the largest Italian banks, like UniCredit, are suffering. While Italy’s financial institutions have limited exposure to the debt of other troubled euro zone countries, their holdings of Italian bonds are “sizable,” Mr. Saccomanni said. Those worries have put a liquidity squeeze on Italy’s banks, curbing their access to market financing — a situation other financial institutions on the Continent are also facing.

Analysts say they believe that before Italy can truly exert more influence in Europe it must attack its own economic problems.

“You have to reverse the trend and send a signal to the markets and rating agencies that we are going in the right direction,” Mr. Menotti of the Aspen Institute Italia said.

Liz Alderman reported from Paris.

Article source: http://www.nytimes.com/2011/11/23/business/global/rome-gets-new-respect-at-european-union.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

The Saturday Profile: For Wolfgang Schäuble, Seeing Opportunity in Europe’s Crisis

November 20, 2011 by Leave a Comment

WHERE the world finds only chaos and impending disaster in the European debt crisis, Wolfgang Schäuble sees the long-awaited urgency to finish the half-complete job of unifying Europe. As Germany’s finance minister and a close confidant of Chancellor Angela Merkel, he is in a uniquely powerful position to shape the outcome.

Yet it is something of a miracle that Mr. Schäuble is in the German government at all. His health has been an issue since Oct. 12, 1990, the day a would-be assassin shot him, paralyzing his legs and confining him to a wheelchair from that point forward.

His troubles did not end there, however. As recently as May 2010, on his way to Brussels for an emergency meeting of European Union finance ministers, Mr. Schäuble (pronounced SHOY-bluh) found himself in the intensive care unit of a Belgian hospital, battling complications from an earlier operation.

At that point, with the German news media speculating about his resignation, and even his chances of survival, he phoned Mrs. Merkel to discuss his future.

AS the early sunset of a Berlin autumn evening darkened his office, Mr. Schäuble, 69, recalled asking Mrs. Merkel if he could have until the end of the week to see whether he could regain enough strength to return to work. “She said she found that to be the wrong question entirely. I should take the time I needed to get better,” Mr. Schäuble said. “She said she needed me and she wanted me. End of discussion.”

It proved to be a wise decision. Mr. Schäuble’s experience has been crucial to Mrs. Merkel as she has tried to hold the line between European partners demanding Germany’s financial assistance and angry voters who do not want to pay off the debts of their profligate southern neighbors. And political analysts say Mr. Schäuble was indispensable in holding together the conservative bloc in the vote over expanding the European rescue fund, the bailout fund meant to help heavily indebted euro-zone nations like Greece, which had evolved into a de facto vote of confidence for Mrs. Merkel’s crisis management.

Mr. Schäuble recalled the palpable fear at a meeting of the Group of 20 finance ministers in Washington in September, held the week before the vote on the rescue fund was scheduled. “You should have felt it,” he said he told his party’s parliamentary group upon his return. “We carry not only responsibility for ourselves. We are also responsible for the development of the global economy.”

Mr. Schäuble, his hair white and a little sparse, the hint of gravel in his voice, is the oldest member of Mrs. Merkel’s cabinet, the last born before the end of World War II and a throwback to pro-European conservatives like Helmut Kohl, under whom he was chief of staff. A campaign finance scandal forced him to step aside in 2000 as chairman of the Christian Democratic Union in favor of the young East German politician Angela Merkel, whom he had put forward as the party’s general secretary less than two years earlier.

NOW, for the second time in his career, Mr. Schäuble finds himself loyally serving a chancellor. He was a whiz at math as a boy but studied law, eventually earning a doctorate. He was just 30 when he entered the Bundestag, with an eye fixed on the chancellery.

But over the years, with the shooting, the scandal and Mr. Kohl’s lengthy tenure — some say his refusal to give way to his presumed successor — Mr. Schäuble evolved from an ambitious young politician to an elder statesman beyond worrying about his political future. “If it puts him in a bad light, but it’s good for Germany, he’ll do it,” said Fred B. Irwin, president of the American Chamber of Commerce in Germany, who has known Mr. Schäuble for 25 years.

That, observers say, has given him the freedom to pursue an agenda even more pro-Europe than Mrs. Merkel’s. “Under Merkel he’s developed an extremely independent role,” said Ulrich Deupmann, author of a biography of Mr. Schäuble. Or as the Frankfurter Allgemeine newspaper put it this year: “The finance minister is his own chancellor.”

Article source: http://feeds.nytimes.com/click.phdo?i=bc17c6b10fd5ceffdc8c31305c5f9181

Filed Under: Economy News Tagged With: , ,
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