March 29, 2024

New Treaty to Save the Euro May Also Divide Europe

In a day of historic, seemingly tectonic shifts in the architecture of Europe, all 17 members of the European Union that use the euro agreed to the new treaty, along with six other countries that wish to join the currency union eventually. Three stragglers, the Czech Republic, Hungary and Sweden entered the fold later, after a strong diplomatic push.

Twenty years after the Maastricht Treaty, which was designed not just to integrate Europe but to contain the might of a united Germany, Berlin had effectively united Europe under its control, with Britain all but shut out.

Though not a perfect solution, because it could be seen as institutionalizing a two-speed Europe, the intergovernmental pact could be ratified much more quickly by parliaments than a full treaty amendment. Crucially, the deal was welcomed immediately by the new head of the European Central Bank, Mario Draghi.

“It is a very good outcome for euro area members, and it’s going to be the basis for a good fiscal compact and more disciplined economic policy in euro area countries,” Mr. Draghi said early Friday morning.

The support of Mr. Draghi and the bank to continue to buy the bonds of troubled large countries like Italy and Spain is crucial to buy time for their economic adjustment and restructuring, to reduce their debt and avoid a collapse of the euro.

The outcome was a significant defeat for David Cameron, the British prime minister, who had sought assurances to protect Britain’s financial services sector in exchange for doing a deal. President Nicolas Sarkozy of France said that “David Cameron requested something we all considered unacceptable, a protocol in the treaty allowing the U.K. to be exempted for a certain number of financial regulations.”

Mr. Cameron said, “What was on offer wasn’t in British interests, so I didn’t agree to it.” He conceded that there were risks with others going ahead to form a separate treaty, but added, “We will insist that the E.U. institutions, the court and the Commission work for all 27 nations of the E.U.”

The prime minister seemed to be betting that his unhappy coalition partners, the Liberal Democrats, would not bolt over the issue, and that calculation seemed to be right. On Friday, the party’s leader, Nick Clegg, said that as much as he regretted the turn of events, Mr. Cameron’s demands had been “modest and reasonable.”

The European Council president, Herman Van Rompuy, said that in addition, the leaders agreed to provide an additional 200 billion euros to the International Monetary Fund to help increase a “firewall” of money in European bailout funds to help cover Italy and Spain. He also said a permanent 500 billion euro European Stability Mechanism would be put into effect a year early, by July 2012, and for a year, would run alongside the existing and temporary 440 billion euro European Financial Stability Facility, thus also increasing funds for the firewall.

The leaders also agreed that private-sector lenders to euro zone nations would not automatically face losses, as had been the plan in the event of another future bailout. When Greece’s debt was finally restructured, the private sector suffered, making investors more anxious about other vulnerable economies.

Mr. Sarkozy said that the institutions of the European Union would be able to police the new pact, though Britain may dispute that.

Chancellor Angela Merkel of Germany, who pressed hard for a treaty that would codify and enforce debt limits and central oversight of national budgets, said the decisions made here would result in increased credibility for the euro zone. “I have always said the 17 states of the euro zone need to win back credibility,” she said. “And I think that this can happen, will happen, with today’s decisions.”

European financial markets strengthened mildly on word of the agreement. The Euro Stoxx 50 index, a barometer of euro zone blue chips, gained 1.5 percent, while broader barometers rose slightly, and stocks rose in early trading in the United States as well. The euro’s value strengthened to $1.3369, up from $1.3338 on Thursday. In the bond market, the borrowing costs of the euro region’s two most closely watched debt-ridden economies, Italy and Spain, were little changed.

President Obama said on Thursday that the European leaders’ efforts to reach a long-term “fiscal compact where everybody’s playing by the same rules” were “all for the good.” Yet he added, “But there’s a short-term crisis that has to be resolved to make sure that markets have confidence that Europe stands behind the euro.”

Jack Ewing contributed reporting from Frankfurt, and Mark Landler from Washington.

Article source: http://feeds.nytimes.com/click.phdo?i=61e4e11c22026b4294a20197848029a3

Greek Leaders Fail to Reach Consensus on Austerity Measures

But Prime Minister George Papandreou, speaking to the nation in a televised speech, said there was still hope that an agreement would be reached.

“Essentially, there are many points on which we can agree,” he said. “But there is a need for political will from all sides.” “Over the next few days we will continue efforts to reach a consensus,” he continued, adding that “the government has assumed the responsibility to extract the country from the crisis and will do this with or without consensus.”

The aim of Friday’s meeting was to convince officials of the European Union and International Monetary Fund that Greece had the political will to impose more tax increases and spending cuts on a public already weary after a year of belt-tightening.

The effort came amid mounting speculation about the Greek government’s ability to avert a default, which would very likely lead to a new financial crisis across the euro zone.

Olli Rehn, the E.U.’s commissioner for economic and monetary affairs, said in a statement that the commission “regrets the failure of Greek party leaders to reach consensus on economic adjustment to overcome the current debt crisis.”

“An agreement has to be found soon,” Mr. Rehn said. “Time is running out.”

Earlier in the day, leaders of the opposition in Greece had refused to fall in behind the president, Karolos Papoulias. Antonis Samaras, the leader of the country’s main conservative opposition party, New Democracy, said he would not back a program that would “raze Greece’s economy and destroy its society.”

He called for the renegotiation of the terms of an agreement with the Union and the I.M.F., which last May pledged ¤110 billion in loans to Greece in exchange for the country’s getting its fiscal house in order.

Mr. Samaras also reiterated calls for an alternative approach to Greece’s finances, one that favored the lowering of taxes and faster privatization of state assets.

On Thursday, the head of the group of euro zone finance ministers, Jean-Claude Juncker, said again that the E.U. would be unlikely to step in if the I.M.F. withheld its portion of a fifth installment of emergency funding to Greece — ¤12 billion, or $17 billion, scheduled to be disbursed next month.

Greece’s lenders are demanding additional measures after the country missed its deficit-reduction target for 2010, putting the goals for this year and beyond further out of reach. A mission from the European Commission, the I.M.F. and the European Central Bank is currently compiling a much-anticipated report on the Greek government’s progress, after which European ministers will have to decide how to react.

The situation is difficult because public opinion in creditor countries is hardening and some euro zone governments, including that of the Netherlands, have made it clear that they will not step in and fill the funding gap if the I.M.F does not believe that it can justify releasing its portion. That has increased pressure on the Greek government to agree to revenue raising measures, including on privatization, that will be sufficient to win over the I.M.F.

At the Group of Eight meeting in Deauville, France, on Friday, the United States expressed support for European efforts to prevent a renewed debt crisis in Greece from mushrooming into a larger problem for the euro monetary union, said two European diplomats who were present during the discussions but did not want to be named.

The Americans said that Europe’s ability to manage these problems was important to the United States, but that President Barack Obama did not specify what kind of help the United States would be willing to extend, other than statements of support, the diplomats said.

The European leaders said during the discussions that Europe’s problems were limited to Greece and that they did not believe Greece risked infecting the rest of the euro zone, which covers 17 countries. They pointed to the continued strength of the euro vis-à-vis the dollar as proof that the situation was still under control.

The leaders agreed, however, that Greece needed to be more aggressive in adjusting its own finances, and said they believed that the country would ultimately be able to avoid defaulting on or restructuring its debts.

Greek media has speculated in the past week that the country would hold snap elections or possibly return to the drachma. The E.U. marine affairs commissioner, Maria Damanaki, who is a Greek Socialist, added fuel to the fire when she suggested on Wednesday that talks are already taking place about Greece’s possible exit from the euro zone.

Apart from tax increases and public spending cuts, the Greek government’s proposed austerity program also includes a privatization drive that foresees sales in stakes of state utilities and assets including the state telecommunications company OTE.

On Friday, Deutsche Telekom, which already has a 30 percent stake in OTE, confirmed the receipt of a letter from the Greek finance ministry asking to arrange talks to discuss increasing its stake.

A few dozen employees of the phone company protested a further sell-off by blocking one of Athens’s busiest roads, in front of the company’s headquarters, during the morning rush hour Friday.

Larger protests have been held over the past three days as Greeks, facing a deepening recession and mounting unemployment, seek to air their grievances.

Kevin J. O’Brien in Berlin, Stephen Castle in Brussels and Liz Alderman in Deauville, France, contributed reporting.

Article source: http://www.nytimes.com/2011/05/28/business/global/28euro.html?partner=rss&emc=rss