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Europe Struggles With Managing Its Support of Greece

September 15, 2011 by Leave a Comment

That was the stay-the-course upshot of a conference call Wednesday evening in Europe by President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany with the Greek prime minister, George Papandreou.

With no new proposals issued, the conversation seemed mainly intended to send a message that Europe’s two richest countries do not intend to let Greece’s debt crisis spiral out of control.

The conversation came at the end of a day in which European stock markets took a breather from the recent spate of crisis-induced sell-offs, even shrugging off the credit-rating downgrade of two big French banks.

Stocks closed higher in the United States, too, as the Treasury secretary, Timothy F. Geithner, voiced confidence in Europe’s ability to “hold this thing together,” but indicated it was the Europeans’ problem to solve.

Mr. Sarkozy and Mrs. Merkel told Mr. Papandreou that he must meet deficit-cutting promises to the European Union and the International Monetary Fund in return for subsidized loans and a second bailout, according to the French and German governments. Mr. Papandreou, in turn, briefed them about Greek cabinet decisions on further state job cuts and other economic reforms, Greek officials said.

France and Germany also promised full support for Greece and for preserving the euro zone.

The French and Germans are pushing all euro zone states to rapidly ratify an agreement reached on July 21 to expand the bailout program known as the European Financial Stability Facility to 440 billion euros ($601 billion) and give it greater flexibility to protect Greece and other heavily indebted members as they work to stabilize their finances.

A Greek government spokesman, Ilias Mossialos, said that Germany and France had expressed confidence that new austerity measures announced by the Greek government over the weekend — chiefly a new property tax — would ensure that Athens meets deficit reduction goals set by foreign creditors, while securing a sixth installment of emergency funds on which its solvency depends.

Before the call, a French government spokeswoman, Valérie Pécresse, emphasized that France was determined “to do everything in order to save Greece.”

But France and Germany are also determined to save their own banks, which are heavily exposed to Greek debt. And analysts say the banks have not fully written down that exposure to a realistic level, given wide expectations that the Greek debt would need to be restructured yet again, forcing its creditors to absorb further losses.

France suffered a minor blow on Wednesday as two of its biggest banks, Société Générale and Crédit Agricole, were each downgraded a notch by Moody’s Investors Service — a move expected, but not as severe as some had predicted. Moody’s kept a third bank, BNP Paribas, under review, but said its profitability and capital base provided an adequate cushion to support its exposure to Greek, Portuguese and Irish debt.

French officials insisted that the banks were strong, and implied that Paris would do whatever was necessary to recapitalize them if necessary to cover any Greek losses.

Mr. Geithner also sought to soothe nerves over a possible Greek default in a CNBC interview Wednesday morning. Mr. Geithner, who plans to attend an informal meeting of European finance ministers on Friday in Poland, said “there is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market.”

But he added: “They recognize that they have been behind the curve. They recognize that it will take more force behind their commitments.”

Mr. Geithner was not specific about what needed to be done, but said the United States was concerned “because it adds to a lack of confidence.” But ultimately, he said, “this is their challenge.”

Nicholas Kulish reported from Berlin. Additional reporting was contributed by Liz Alderman in Paris, Stephen Castle in Brussels, Androniki Kitsantonis in Athens and Landon Thomas Jr. in London.

This article has been revised to reflect the following correction:

Correction: September 14, 2011

An earlier version of this article erroneously stated that the downgrade of Société Générale was related to its exposure to the Greek economy.

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Merkel Underscores Opposition to Euro Bonds

August 21, 2011 by Leave a Comment

FRANKFURT — Chancellor Angela Merkel of Germany on Sunday re-emphasized her opposition to issuing bonds backed by all the euro zone countries, a position that will be greeted enthusiastically by many of her fellow citizens but could unsettle investors at the beginning of what could be another difficult week in global financial markets.

Mrs. Merkel told ZDF television in an interview broadcast Sunday that the so-called euro bonds would be an option only in the distant future.

“It will not be possible to solve the current crisis with euro bonds,” she said. She added that “politicians can’t and won’t simply run after the markets.”

“The markets want to force us to do certain things,” she added. “That we won’t do. Politicians have to make sure that we’re unassailable, that we can make policy for the people.”

The German finance minister, Wolfgang Schäuble, echoed Mrs. Merkel’s comments, saying that common debt would make it easier for governments to avoid pursuing responsible fiscal policies. In any case, he told the newspaper Welt am Sonntag, it would take too long for countries in the euro zone to amend the treaty on monetary union, which would probably be required to allow the issuance of such bonds.

“We have to solve the crisis within the existing treaty,” Mr. Schäuble said.

The statements by the German leaders are in tune with public opinion in Germany as well as in other countries, like the Netherlands. The Dutch finance minister, Jan Kees de Jager, told the magazine Der Spiegel in an interview published Sunday that Mrs. Merkel should remain firm in her opposition to euro bonds.

That is not what investors want to hear, however.

Stocks around the world plunged last week amid widespread concern that political leaders were unwilling to take bold steps to address the European sovereign debt crisis, at the same time that indicators were pointing to sharply slower growth in Europe and the United States. The benchmark Stoxx Europe 600 index dropped 6 percent last week, with banks suffering some of the biggest drops.

Any further drop in investor confidence could also put pressure on the European Central Bank, which has been intervening in bond markets to hold down yields on Italian and Spanish debt and keep borrowing costs for those countries from reaching dangerous levels.

So far the central bank’s bond market intervention, which began two weeks ago, has kept Italian and Spanish yields below 5 percent, Frank Engels, an analyst at Barclays Capital in Frankfurt, wrote in a note. In October, the European Financial Stability Facility, the bailout fund, will be able to buy government bonds. But that may not be enough to keep yields within bounds, he said.

Mr. Schäuble told Die Welt that he did not think it would be necessary to increase the size of the bailout fund. Such comments may come as a particular disappointment to investors because Mr. Schäuble is regarded as one of the most pro-European members of the German cabinet, and among the most willing to agree to national sacrifice in the interest of saving the common currency.

But Mr. de Jager, the Dutch finance minister, said he would be willing to increase the size of the bailout fund.

Since the beginning of the debt crisis, Mrs. Merkel has resisted being swayed by bond investors; she waited until pressure became intense before agreeing to aid for Greece and other measures that were unpopular with German voters.

She also said she saw “nothing that points to a recession in Germany.” She acknowledged that political leaders needed to regain the confidence of financial markets but said the best way to do that would be to reduce debt.

Mrs. Merkel expressed opposition to euro bonds after a meeting in Paris last week with the French president, Nicolas Sarkozy, during which they pledged to improve economic coordination among euro members.

In the interview with Die Welt, Mr. Schäuble said he personally would be willing to cede some control over fiscal policy to a European finance minister, as Jean-Claude Trichet, the president of the European Central Bank, has proposed. But Mr. Schäuble added, “We can only go as fast and as far as we can convince citizens and their representatives in Parliament.”

Separately, Der Spiegel reported that the German Finance Ministry had calculated that euro bonds would cost Germany an additional 2.5 billion euros, or $3.6 billion, in interest payments in the first year of issuance, and as much as 10 times that sum each year after a decade. Germany’s borrowing costs are typically among the lowest in the world, but could rise if the nation’s reputation for fiscal prudence was diluted by closer association with countries like Italy.

A Finance Ministry spokesman said he could not confirm the Spiegel report, which the magazine said was based on estimates by unidentified ministry experts.

Opposition to euro bonds is strong within German political circles and among the country’s conservative economics establishment because of the perception that the country would wind up subsidizing its neighbors.

But some economists argue that euro bonds would be cheaper even for Germany, because the volume of the bond market would rival that of United States Treasury securities and promote the euro as a reserve currency. That would increase demand for the bonds and lower interest rates.

There is some support for euro bonds in Germany. Leaders of the opposition Social Democrats and Green Party have spoken in favor of common European debt. In addition, the Frankfurter Allgemeine newspaper quoted several members of Mrs. Merkel’s governing coalition in Parliament on Sunday as saying that Germany should not rule out euro bonds forever.

While rejecting the bonds, Mr. Schäuble said that Germany would defend the euro “under all circumstances” and that the government categorically rejected suggestions that Greece should leave the euro zone, as some economists have proposed.

If Greece dropped out, he said, Europe would suffer “a dramatic loss of trust and influence.”

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Pledge of Euro Unity May Not Be Enough to Satisfy Markets

August 17, 2011 by Leave a Comment

Reflecting the uncertainty, European stock markets were mixed on Wednesday, with indexes in Britain and Germany down at midday but French and Italian shares showing modest gains. The response seemed to show that the two leaders’ announcement had failed initially to ease market jitters.

“In terms of new policies to address the immediate debt problems, there was little new,” analysts at Nomura said in a note Wednesday.

President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany called for each nation in the euro zone to enshrine a “golden rule” into their national constitutions to work toward balanced budgets and debt reduction, a level of discipline well beyond the current, oft-broken commitment.

They also pledged to push for a new tax on financial transactions, and for regular summit meetings of the zone’s members under the leadership of Herman Van Rompuy, who heads the council of all 27 European nations.

“We are certainly heading for greater economic integration of the euro zone,” Mr. Sarkozy said.

The much-anticipated meeting at the Élysée Palace here produced little that would seem to quell the nerves of bond traders, who are becoming increasingly worried that the economic slowdown in both Germany and France will make it harder to overcome Europe’s debt crisis.

Both leaders ruled out issuing collective bonds, known as eurobonds, to share responsibility for government debt across member states, and they opposed a further increase in a bailout fund that will not be put into place until late September at the earliest.

Mrs. Merkel repeated that there was “no magic wand” to solve all the problems of the euro, arguing that they must be met over time with improved fiscal discipline, competitiveness and economic growth among weaker states.

Even the stronger members of the euro zone have stalled. Official figures released on Tuesday showed that growth in the zone fell to its lowest rate in two years during the second quarter, and that Germany — considered the Continent’s locomotive — came almost to a standstill, growing 0.1 percent.

The German figures followed data showing that the French economy was flat in the second quarter, leaving Europe’s two largest economies stagnant. That means the two pillars of the European economy may be less willing and able to prop up their weaker counterparts, analysts warned.

Across the euro zone, gross domestic product rose only 0.2 percent in the second quarter from the first, when growth had advanced by 0.8 percent, according to Eurostat, the European Union’s statistics agency.

The joint French-German proposals were as modest as German officials had forecast. And the most ambitious idea — that all euro zone states legally bind themselves to working toward balanced budgets and reduced sovereign debt — is unlikely to be accepted by all member states. It may not even get through the French constitutional process, since Mr. Sarkozy does not have a constitutional majority in Parliament.

The proposal calling for twice-yearly meetings and increased integration could formalize the “two-speed Europe” — of those in the euro zone and those outside it — that many warned of when the European Union expanded so rapidly after the collapse of the Soviet Union in the early 1990s.

Both leaders said that France and Germany must set an example, citing their agreement to propose jointly a financial-transaction tax by 2013 as “an example of convergence” needed in the entire euro zone. But such a tax is unlikely in the larger European Union, especially if Britain, which is outside the euro zone and contains Europe’s biggest financial center, continues to resist the idea.

They also said they would work to harmonize French and German economic assessments and, in the future, corporate tax rates.

“France and Germany are committed to strengthen the euro,” Mrs. Merkel said. “To that end we need to better integrate our economies” and “to see that the stability pact will be acted on.”

The stability pact, a central element of the treaty that established the euro zone, commits members to keep fiscal deficits to 3 percent of gross domestic product a year and total sovereign debt under 60 percent of G.D.P. Both benchmarks are regularly missed.

Steven Erlanger reported from Paris, and Jack Ewing from Frankfurt.

Article source: http://www.nytimes.com/2011/08/18/business/global/pledge-for-euro-unity-may-not-be-enough-to-satisfy-markets.html?partner=rss&emc=rss

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Shares Fall as Anxiety Over Europe Holds Sway

August 17, 2011 by Leave a Comment

Financial stocks led an overall market decline on Wall Street on Tuesday after a meeting between the leaders of Germany and France to try to address the widening crisis in the euro zone.

The meeting brought to the forefront one of the main concerns of investors, who were also reacting to new euro zone data that raised concerns about unsteady global economic growth.

As attention shifted to the meeting in Paris between Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France, the euro zone’s two largest economies, investors waited to hear how the leaders would address the threat posed by low growth and unstable public finances in some euro member nations. Fears have recently also surfaced over France.

Both leaders flatly rejected an idea that has recently gained currency among more economists: the creation of new government bonds backed by all the nations of the euro zone.

Mr. Sarkozy said he would not rule out euro bonds at some point in the future, but said greater coordination of economic policy among euro zone members was a necessary first step.

At the close, the American markets had shaved off some of the gains built up over the last three trading sessions that had propelled them to recover from losses in the wake of the Standard Poor’s Aug. 5 downgrade of America’s long-term credit rating. The S. P. 500-stock index was down nearly 1 percent or 11.73 points, at 1,192.76. The Dow, which was up 1.1 percent on Monday, declined by 0.67 percent, or 76.97 points, to 11,405.93, while the Nasdaq was lower by 1.24 percent or 31.75 points, at 2,523.45.

“It’s Europe now; the focus has shifted,” said Brian Gendreau, market strategist for Cetera Financial Group. “I think it is not so much there is any bad news, but it is a continuation of the policy instability.”

“I don’t think it is anything specific,” he added. “Just a lack of what is viewed as progress to medium-term solutions.”

Peter Cardillo, chief market economist for Rockwell Global Capital, said that he believed the declines in the stock market had been set off by the remarks on euro bonds especially.

“The deceleration that we saw is disappointment, Sarkozy shooting down the idea of the euro bonds, and that I think is disappointing the market at this time,” Mr. Cardillo said.

But he added: “We are not seeing real panic in the market, and the fact that we opened up lower may have been more due to a technical reaction after three strong days of gains. Volatility is going to accompany this market for some time to come, but I think the market is going to discount the worst-case scenarios.”

Analysts said concerns over the economy in the euro zone and in the United States had weighed on trading, a negative tone only worsened by the downgrade.

Gross domestic product in the 17-nation euro area rose 0.2 percent in the second quarter compared with the previous quarter, according to Eurostat, the union’s statistics agency. Euro area growth was down from 0.8 percent in the first quarter.

Adrian Cronje, chief investment officer of Balentine, said that the markets needed to hear a forceful message that the troubles in the euro zone went beyond the sovereign debt crisis.

“What markets are sensing and are worrying about is that the resolution to the European debt crisis is going to be a timid, untimely and inconsistent response,” Mr. Cronje said. “Taxing financial transactions and playing with time is not facing up to the real issue,” he added.

Financials and energy stocks were both down by more than 1 percent. Bank of America, Citigroup and Morgan Stanley were each down by more than 4 percent. Among individual stocks, Wal-Mart was up $1.94 at $51.92 after reporting a 5.7 percent increase in quarterly profit. Home Depot, which reported an increase of 14 percent in quarterly profit and raised its outlook for full-year income, was up $1.59, at $33.05.

The price of the 10-year Treasury note rose 24/32 to 99 4/32, and the yield fell to 2.23 percent, from 2.31 percent late Monday.

Nicola Clark and Jack Ewing contributed reporting.

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Heads of Europe Back Broad Plan to Rescue Greece

July 22, 2011 by Leave a Comment

The pact, negotiated in Brussels, is part of a rescue package of 109 billion euros, or $157 billion, for Greece, the most troubled economy in the euro zone. It will force many investors in Greek debt to accept some losses on their bonds.

The deal would also provide substantial debt relief for Ireland and Portugal. And by giving the main European rescue fund increased powers to assist countries that have not been bailed out — like Spain and Italy — leaders are betting that the program, described by some as a new Marshall Plan for Europe, will serve as a firebreak against the contagion that has threatened to engulf some of the region’s largest economies.

Officials have long shunned proposals that would make banks and other creditors share some losses on Greek debt. But European leaders are taking the calculated risk that they can avoid spooking investors by expanding the aid package to include other troubled countries on Europe’s periphery.

The fear had been that a failure by Greece to pay its debt in full could lead to panicked selling of other European bonds. That could make it impossible for other countries to borrow at a reasonable interest rate and finance themselves.

The lack of a solution to Greece had also rattled financial markets, ultimately forcing European leaders to act this week. On the eve of the summit meeting, Nicolas Sarkozy of France and Angela Merkel of Germany met in Berlin, along with the president of the European Central Bank, and came to a general agreement that euro zone taxpayers would have to cover the rescue costs to preserve the integrity of the single European currency. How German and French citizens will react to the proposal is unclear.

Financial markets in Europe and the United States rallied Thursday on news that a broad agreement was imminent, one that would end the piecemeal approach that has brought only temporary relief in the last couple of years.

Most economists had deemed Greece incapable of repaying its debt mountain, which amounts to 150 percent of its gross domestic product.

Under the plan, Greece would receive assistance in several ways. Holders of short-term obligations would be able to swap their notes for debt with longer maturities and backed by high-rated bonds. An organization that includes most major European banks said its members would accept the offer and expected 90 percent of all Greek bonds to be exchanged.

Separately, officials said that the terms of the aid package from Europe to Greece would be eased, with maturities lengthened to 15 years from 7.5 years, at an interest rate of a quite low 3.5 percent.

The euro zone leaders would give wide-ranging new powers to the region’s rescue fund, the European Financial Stability Facility, by allowing it to buy government bonds on the secondary market and to help recapitalize banks — which might be needed when they write down the value of their Greek bonds.

The new powers would effectively turn the facility into a prototype European monetary fund — a move that has long been resisted by Germany, the euro zone’s richest nation, but that has drawn the support of economists and government officials outside Europe.

Together, the various measures are intended to show that the euro zone’s leaders are committed to taking forceful policy measures — just as the United States and Britain did during the 2008 crisis — that will stem the spread of contagion.

“This is a move in the right direction,” said Peter Bofinger, an economist in Germany who is a member of an economic panel that advises the German government. “The important thing is that they have agreed on a more flexible role for the E.F.S.F. — that should help in reducing tensions.”

But the true test will most likely come in the months ahead, when nations like Portugal, Ireland and Spain, which are struggling to impose unpopular austerity measures on their people, confront the difficulty of cutting budget deficits in the face of brutal recessions.

While the agreement to increase the powers of the euro bailout fund did not come easily, the debt deal was perhaps harder to secure.

The move will be deemed a selective default by the credit ratings agencies, something the European Central Bank had previously said was unacceptable.

James Kanter contributed reporting.

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Hints of a Bank Plan for Europe Before a Meeting on Greece

July 21, 2011 by Leave a Comment

Details of the agreement were not disclosed, but the statement said it would include participation of Europe’s banking sector.

Released by the office of the French president, Nicolas Sarkozy, the statement said he and Chancellor Angela Merkel of Germany had reached an agreement they presented to Herman Van Rumpuy, president of the European Council, for consideration.

The leaders of the 17 member countries of the euro zone are to meet in Brussels to try to keep the debt crisis from spiraling out of control after a week of market turbulence in which borrowing costs spiked in Italy and Spain.

Many see the meeting as a moment of truth, particularly for Mrs. Merkel, whose caution has been blamed by some for the region’s failure to stem the crisis, and who, earlier this week, played down expectations of a breakthrough on Thursday.

“Nobody should be under any illusion: the situation is very serious,” José Manuel Barroso, president of the European Commission, the executive arm of the European Union, said earlier in the day. “It requires a response. Otherwise the negative consequences will be felt in all corners of Europe and beyond.”

The commission was arguing for a plan that would have private creditors swap Greek bonds that mature before 2019 for new 30-year bonds, thereby prompting a selective default, according to an official briefed on the negotiations who was not authorized to speak publicly.

The terms of the plan would imply a 20 percent reduction in the value of Greek bonds, the official said, a change that would raise tens of billions of euros to be directed to support the Greek bailout.

In addition, the other countries in the euro area and the International Monetary Fund would contribute 71 billion euros, or $100 billion, to the rescue plan, up to 2014.

Meanwhile, a tax on the banks equivalent to 0.025 percent of the assets of financial institutions could raise around 50 billion euros over five years and would finance a buyback of Greek bonds via the euro zone bailout fund known as the European Financial Stability Facility, the official said. That would reduce the stock of Greek debt by around 20 percentage points of gross domestic product.

Although a tax on banks has been discussed for several days, it had previously been presented as a tool for raising private sector financing without provoking a default, rather than a means of raising additional money. There are also technical problems with a bank tax that would have to be levied by each national government and would exclude countries that did not use the euro even if they had Greek liabilities.

With its willingness to contemplate selective default and ambitious targets for raising cash from the private sector, the European Commission proposal seems to be intended to appeal to Germany, which has consistently called for banks to take a substantial part of the loss.

Germany, Finland and the Netherlands are at odds with the European Central Bank and some governments over their insistence that private bondholders share the pain. Besides concerns over contagion, the central bank has said that a selective default would make it impossible to accept Greek bonds as collateral. That may require measures to ensure that liquidity still flows to Greek banks, the official said.

Officials said it was unclear whether the plan floated by the commission would be accepted by Berlin and Paris and other governments.

One element attracting consensus is the need to reduce the burden on indebted nations, not only by buying back Greek bonds but also through a reduction in the interest rates offered to Greece, Ireland and Portugal, which have also accepted international help. The maturities of these loans would also be extended.

The European Financial Stability Facility looks destined to gain a more important role, financing the buyback of bonds, and possibly the extension of credit lines or help in bank recapitalization.

“For the federal government, the participation of private investors is of immense value and is our aim,” Steffen Seibert, the German government spokesman said on Wednesday. “We are very confident that there will be a good and sensible solution,” he said in Berlin.

Economists said that a debt buyback would have other consequences.

If the program were voluntary, some investors might not participate, hoping that market prices for Greek debt would rise. So the buyback would have to be compulsory — a default, in other words — for Greece to get the debt reduction it needed, said Harald Benink, a professor of banking at Tilburg University in the Netherlands.

In addition, Greek banks would need to be bailed out because they have such large holdings of domestic debt. Portugal and Ireland might need a similar buyback deal to protect them from market attacks. The European Central Bank might need to be compensated for losses on its holdings of Greek debt.

And the European Union would have to substantially increase the size of the stability fund to show markets it is ready to protect Spain and Italy, Mr. Benink said.

“That requires a lot of political willingness and ability,” he said. “The worry is that these political leaders will have to drive at a much faster speed than their voters will allow them.”

Judy Dempsey reported from Berlin. Jack Ewing in Frankfurt and Matthew Saltmarsh in London contributed reporting.

Article source: http://www.nytimes.com/2011/07/21/business/global/eu-official-warns-of-global-impact-if-europe-fails-to-act-on-debt-crisis.html?partner=rss&emc=rss

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Europe’s Economic Powerhouse Drifts East

July 18, 2011 by Leave a Comment

With large parts of Europe still in an economic rut and struggling to cope with a debt crisis, Germany is increasingly deploying its money and energy outside the euro zone to fuel its robust growth.

The shift in focus, while still in its early stages, could have profound economic and political implications because it comes at a critical time when the rest of Europe is counting on Germany to continue its traditional role as the locomotive of the Continent’s economy.

German companies, instead of concentrating their investment overwhelmingly on countries like France and Italy, are sending a growing proportion of their euros to places like Poland, Russia, Brazil and especially China, which is already the largest market for Volkswagen and could soon be for Mercedes and BMW.

The German government is following suit, committing more diplomatic resources to its growing trade partners, particularly China, whose prime minister, Wen Jiabao, brought an entourage of 13 ministers and 300 managers when he visited Chancellor Angela Merkel of Germany last month.

President Dmitri A. Medvedev of Russia brought a similar entourage with him Monday to Hanover for annual German-Russian consultations, including Alexander Medvedev, deputy chief executive of Gazprom.

The economic shift is already having profound consequences inside Europe. As Germany becomes less dependent on euro zone markets, there are signs that it is becoming stricter with its ailing partners, like Greece, Italy and Portugal, adding to the pressures already straining European unity.

“It reinforces a shift that we have seen in recent years for Germany to become rather more focused on its own national interests rather than sacrificing for some defined European interest,” said Kevin Featherstone, an expert on E.U. politics at the London School of Economics. “Germany is not giving up on Europe, but it is certainly frustrated.”

German politics are in line with the interests of German businesses like Fresenius, a health care company in Bad Homburg, near Frankfurt. Last year, Fresenius recorded a sales increase in Asia of 20 percent, to €1.3 billion, or $1.8 billion. That compared with its sales in Europe of €6.5 billion, up 8 percent.

Fresenius’s chief executive, Mark Schneider, said he expected the trend to continue, noting that China was trying to create a universal health care system that would ensure its people access to kidney dialysis and infusion therapies — the sort of products that Fresenius provides.

Germany, of course, remains deeply entwined with the euro zone, which is still its largest source of trade by far. But Western Europe’s share in the German pie is shrinking as companies focus new investment on more vibrant markets.

“I’m not sure I would call Germany the locomotive” for Europe anymore, said Marc Lhermitte, a partner at the consulting firm Ernst Young. “It’s an engine.”

Mr. Lhermitte was one of the directors of a study in May by the firm that looked at trends in cross-border investment around the world.

Last year, the euro area’s share of German exports fell to 41 percent from 43 percent in 2008, while Asia’s share rose to 16 percent from 12 percent, according to Bundesbank figures. During the same period, exports to Asia rose by €28 billion, while exports to the euro area fell by the same amount.

Fresenius is one of many companies that reflect the trend. Corporate investment in Western Europe is still rising in absolute terms, said Mr. Schneider, but “capital spending and employment is not rising as much as we are seeing in emerging markets.”

There are also signs that Germany’s prosperity is no longer helping the rest of Europe the way it did a few years ago. On the contrary, the rest of Europe, particularly its southern half, is falling further behind as the European Union struggles to deal with the sovereign debt crisis.

The Italian economy, for example, is no longer cruising in Germany’s slipsteam.

Article source: http://www.nytimes.com/2011/07/19/business/global/Germany-Europes-Powerhouse-Drifts-East.html?partner=rss&emc=rss

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Europeans Agree to a New Bailout for Greece With Conditions

June 25, 2011 by Leave a Comment

“We have agreed that there will be a new program for Greece,” Angela Merkel, the chancellor of Germany, told reporters at the end of a two-day meeting in Brussels. “This is an important decision that says once again we will do everything to stabilize the euro over all.”

The comments came a day after Greece agreed with international creditors to more austerity measures as part of revised plans for 2011-15 aimed at plugging a gap in its future financing.

If the Greek Parliament approves this proposal next week, the European Union and the International Monetary Fund will release a 12 billion euro ($17 billion) tranche of emergency aid, and then put together a second rescue.

The shape and size of the new bailout could become clear at a meeting on July 3 of euro zone finance ministers in Brussels.

All this comes a little more than a year after the government in Athens won a package of loans worth 110 billion euros.

“Greece is supported,” President Nicolas Sarkozy of France said at a news conference. “Europeans trust the Greek authorities and Parliament in their endeavors to implement the bold measures that have been decided.”

After discussions with the Greek prime minister, George Papandreou, European leaders expressed confidence that Greece’s Parliament would approve the austerity package, which has already prompted large protests in Athens.

Changes to the plan, negotiated with European and I.M.F. officials Thursday, are certain to make it even less popular among Greek citizens.

The new austerity program will now include a one-time levy on personal income ranging from 1 to 5 percent, depending on income.

Meanwhile, the tax-free threshold on income will be lowered to 8,000 euros a year from 12,000 euros, with the lowest rate set at 10 percent — but with exemptions for people up to 30 years old, pensioners older than 65 and the disabled. There will also be an annual levy of 300 euros on the self-employed.

On Thursday, at a meeting of center-right parties in Brussels, the Greek opposition leader, Antonis Samaras, refused to bow to pressure to change course and support the new plan during next week’s vote. During the discussion, Mr. Samaras was warned that Europe was engaged in a war for its economic stability, according to one official who spoke on the condition of anonymity.

Reflecting the disappointment of European leaders at Mr. Samaras’s stance, Mrs. Merkel said that “it would be better to have the widest support.”

She also insisted that any new program for Greece should be monitored closely. “One needs to do a reality check on whether the assumptions are proved right,” she said.

Nonetheless, in a statement issued late Thursday, European Union leaders accepted the need for a “new program jointly supported by its euro area partners and the I.M.F.”

That could amount to as much as 120 billion euros, though no figures have been identified yet because euro zone countries are negotiating with private investors to determine their level of voluntary contributions.

After the meeting, Mr. Papandreou conceded that his country was on a “difficult path” but one that was “much better than the alternative path of defaulting.”

“I believe that this is something which is understood by the majority in the Greek Parliament,” Mr. Papandreou said, adding that he was sure that the 12 billion euros in emergency aid would be released next month.

At the summit meeting, an obstacle to the new rescue was removed when the leaders agreed that nations that do not use the euro would not be obliged to contribute through a fund that they finance along with countries that use the single currency.

Britain objected to taking part, arguing that it had not participated in last year’s Greek package and had no plans to join the single currency.

“For Britain, we weren’t involved in this bailout and we should not be involved, as a noneuro country, in anything that might happen subsequently,” David Cameron, Britain’s prime minister, said at a news conference. Some practical difficulties remain, including an insistence from Finland that any new loans to Greece should be guaranteed by collateral.

James Kanter contributed reporting.

Article source: http://www.nytimes.com/2011/06/25/world/europe/25iht-union25.html?partner=rss&emc=rss

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Green Column: Pragmatism Influencing Energy Debates

April 3, 2011 by Leave a Comment

A theory of “peak everything” suggests the world is running short of vital assets like clean water, carbon-free air, some minerals, fish stocks and the cheap fossil fuels that have powered the world economy and helped rein in the price of food.

If countries want to secure domestic supplies and curb carbon emissions, too, then energy options are limited. And that fact has clearly dawned on governments.

Take, for example, the deadly blowout last year at BP’s Macondo well in the Gulf of Mexico, which all but stalled deep-water drilling in the United States.

Licensing there has now resumed, while other countries had dismissed a deepwater freeze from the start, including Britain, whose output is dwindling in the shallower North Sea.

The world’s response to the nuclear crisis caused by the devastating earthquake and tsunami in Japan on March 11 is still evolving, but a bump in the road looks more plausible than a full stop.

President Barack Obama, for instance, laid out a plan last week to cut oil imports by a third by diversifying toward renewable energies and relying on nuclear power.

Italy and China plan one-year moratoriums in new construction for nuclear power, and Japan intends to carry out a policy review. In Germany, Chancellor Angela Merkel’s conservatives lost power in a regional stronghold last week, partly because of her party’s pro-nuclear stance.

Over all, the anti-nuclear sentiment is likely to be less strong than after the more serious Chernobyl reactor explosion in the former Soviet Union in 1986. And the Three Mile Island accident in 1979 in the United States caused a severe backlash there.

“In the United States, this is having much less of an impact,” said Robert N. Stavins, director of the environmental economics program at Harvard University. “It’s not just because it’s overseas. It’s because of climate change. That just changed the legitimacy of nuclear power in the U.S., the perception of it.”

Similarly, there is broad support for offshore drilling even after the gulf oil spill, Mr. Stavins said, because of Republicans’ concerns about energy security and Democrats’ desire to gather support for climate legislation.

Other observers said the driving force for offshore drilling, nuclear power and other resources was the simple need to provide for a global population set to reach nine billion by 2050.

“We could see some continuing support for nuclear, despite what is happening in Japan, but it won’t be fueled by climate change concerns,” said Emmanuel Fages, head of analysis of European energy at Société Générale in Paris.

“It will be because of economic and energy pragmatism,” he said. By that argument, nuclear power may be hit most by rising safety and insurance costs after Fukushima.

The International Energy Agency, the energy watchdog for industrialized countries, said global crude oil output had peaked in 2006, and the world is now forced to get oil from sources like oil sands and natural gas liquids.

Those alternatives, as well as renewable energy and nuclear power, are more expensive and would force the world into a more frugal future, according to Richard Heinberg, who coined the notion of “Peak Everything” in his 2007 book of the same title.

Fukushima could stall nuclear power, he added.

“The real upshot is — the strong likelihood is — we’ll have less energy in the future, and it will be more expensive energy. We’re really looking at a different kind of society,” at least for the next 20 or 30 years before new breakthroughs emerge, he said.

“This was the great benefit of fossil fuels in the early days: We had to invest trivial amounts, and we got this enormous return,” he added

Of course, theories of impending shortages have often turned out wrong, like the 1798 prediction by Thomas Malthus, the British scholar, that population growth would outstrip food production. At the time, the world population was just one billion.

The right strategic response could deal with the risks of resource scarcity, oil depletion and climate change, said Nick Mabey at the London-based environment group E3G. “No one actually is gripping the strategic consequences of these risks,” he said.

To manage risk, government spending priorities should be energy efficiency, interconnected grids to link up different power sources across wide regions, smart grids to smooth demand and absorb volatile wind and solar power, and electric cars.

“Energy policy is about balancing risks,” said James M. Acton of the nuclear policy program at the Carnegie Endowment for International Peace, who added, “all forms of energy carry risks.”

And the tsunami was beyond the design of the Fukushima plant. “The real challenge is to improve our ability to predict natural and man-made disasters,” he said.

Some green groups said that there was no trade-off and that renewable energy coupled with energy efficiency could solve the problems.

Sven Teske, director of renewable energy at the environmental group Greenpeace International, said big shifts were under way with developed nations closing more coal-fired plants than they opened.

“There is a phase-out of coal already. The reality is that everybody is moving towards renewables and gas. But some of the government rhetoric will remain in favor of nuclear,” he said.

Gerard Wynn and Alister Doyle are Reuters correspondents.

Article source: http://www.nytimes.com/2011/04/04/business/energy-environment/04green.html?partner=rss&emc=rss

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Europe to Test Safety of Nuclear Reactors

March 26, 2011 by Leave a Comment

BRUSSELS — After a week of bickering over the future of nuclear power, European Union leaders reached one point of agreement Friday as they decided that reactors across all 27 member nations should undergo safety tests in response to the continuing radiation leaks from a beleaguered plant in Japan.

The move — which came as Europe also remained split over action in Libya and as leaders struggled to calm markets with a plan to bolster the euro — was a rare note of accord on nuclear power.

“We cannot simply pursue business as usual” after the disaster in Japan, Chancellor Angela Merkel of Germany said at the end of a two-day summit meeting of E.U. heads of state and government in Brussels.

The technology supplies about 30 percent of the Union’s electricity. But bitter divisions persist between countries like Austria, which banned nuclear energy in the late 1970s, and Britain, which is planning to build a new fleet of reactors to replace its aging models.

The tests agreed to Friday are voluntary, but José Manuel Barroso, the president of the European Commission, said the tests should be conducted at all 143 reactors across the Union. Mr. Barroso also called for “comprehensive” tests on plants in neighboring countries like Switzerland.

The tests represent only a modest step toward centralized oversight of nuclear energy facilities in Europe, where member states zealously guard control over their energy industries. But Mrs. Merkel insisted that the reviews “will be somewhat different from the safety tests we have had up until now.”

The plan approved Friday calls for national regulators to conduct the tests on the basis of common criteria drafted with the European Commission. The leaders said national regulators would then make the results public. Each government would evaluate the results and make any decisions on shutdowns.

The tests should assess threats from earthquakes, floods, airplane crashes and terrorists and examine the robustness of backup cooling systems, according to Günther Oettinger, the bloc’s energy commissioner. The tests should also assess the security of ponds where highly radioactive spent fuel is stored, Luis Echávarri, director general of the Organization for Economic Cooperation and Development’s Nuclear Energy Agency, said in an interview this week.

After an earthquake and a tsunami knocked out backup power, setting off a crisis at the Fukushima plant north of Tokyo, advocates of nuclear power have stepped up efforts to portray Europe, where severe earthquakes are rare, as being relatively safe. But opponents have seized on an opportunity to highlight concerns about the vulnerability of Russian-designed reactors in Hungary, Slovakia and the Czech Republic, and to discourage the construction of a new reactor in Bulgaria.

By backing the tests, Mrs. Merkel was partly seeking to assuage public concern ahead of a sensitive election on Sunday in the state of Baden-Württemberg, where there are a number of reactors. Germany gets about a quarter of its power from nuclear, but opposition to the technology is widespread, stoked by the accident at Chernobyl, in Ukraine, in 1986.

Mrs. Merkel already has ordered a temporary halt of seven of the oldest reactors in Germany. That signaled a major shift by the chancellor, who had previously supported extending the lives of many of those reactors.

Mrs. Merkel said at a news conference that “decommissioning and phasing out is one option, but there is also the modernization option” for reactors and plants that did not pass the tests. But analysts said Germany could be on the cusp of a more profound policy reversal

If Mrs. Merkel’s party were to lose the election Sunday, said Mark C. Lewis, a managing director at Deutsche Bank, “this would be such a shock to Germany’s body politic that the legislation to extend the operating lives of Germany’s nuclear reactors passed last October would almost certainly face very material changes, and some or all of Germany’s 17 nuclear reactors an accelerated schedule for their permanent shutdown.”

The so-called stress tests approved by the Union are also a delicate matter for France, the world’s second-biggest nuclear power producer after the United States.

French officials want the tests to highlight how the reactors it manufactures — and that could become an important export — are the safest choice for nations choosing nuclear energy.

President Nicolas Sarkozy of France suggested on Friday that what happened in Japan would not happen in landlocked countries and countries that had not experienced similar tsunamis in Europe. Even so, “were the tests to be failed or to be unsatisfactory we will take all necessary measures, which simply means shutting them down,” said Mr. Sarkozy, who added that all 58 reactors in France would be tested.

Earlier in the week, in thinly veiled criticism of Germany, the French energy minister, Éric Besson, said shutting plants on the basis of their age was not suitable in France because other risks, like flooding, based on the location of a plant, were likely to be more significant. Mr. Besson also criticized Mr. Oettinger, and a member of the same political party in Germany as Mrs. Merkel, for warning of an imminent catastrophe in Japan last week.

Opponents of nuclear power immediately complained that the tests will not be rigorous enough to lead to the closure of reactors that lack secondary containment, move spent fuel from vulnerable pools into dry storage, and halt plans for reactors in seismic regions.

“These stress tests are designed to give the impression that there’s a new evaluation of the risks of nuclear power,” said Rebecca Harms, a German member of the European Parliament. “But politicians in France and Germany really want to use them to win new acceptance for nuclear power,” she said.

In another sign of concern in Europe about events in Japan, E.U. food experts late on Thursday ordered random checks on food and animal feed imports for radioactive contamination.

When food and feed arrives in Europe from 12 prefectures in Japan including Fukushima and Tokyo, at least 10 percent of it will be randomly checked, including using laboratory analysis. Random inspections will also be made on 20 percent of food imports from Japan’s other 35 prefectures.

The European Commission, the E.U. executive, emphasized that food safety risks from Japan were low because of the relatively small amount of exports to Europe and because Japanese authorities had taken measures to block sales of any contaminated products.


Article source: http://www.nytimes.com/2011/03/26/business/global/26nuke.html?partner=rss&emc=rss

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