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Merkel and Sarkozy Warn Greece on Debt

January 10, 2012 by Leave a Comment

The leaders of the European Union’s two largest countries met in the German capital to discuss their next steps in combating the sovereign-debt crisis that has destabilized the Continent and threatened the common currency. Even as Mrs. Merkel and Mr. Sarkozy promised quick action to stem the crisis, investors signaled the depth of their ongoing concern over the instability that has spread from Greece to the very heart of the euro zone by purchasing German debt at a negative real interest rate for the first time ever.

Speaking at a news conference after the two leaders met at the chancellery building here, Mr. Sarkozy acknowledged the uncertainty in the markets, saying, “The situation is very tense, very tense.”

There are increasing signs that Greece will fail to make the structural changes to its economy that its leaders have promised. Greek’s prime minister, Lucas Papademos, warned last week that without deeper spending cuts a disorderly default was a possibility, and could result in Greece leaving the euro.

With an eye toward Athens, Mr. Sarkozy said that “our Greek friends must live up to their commitments.” Mrs. Merkel said that if those commitments were not met by the Greek government “it will not be possible to pay out the next tranche” of the bailout money.

The holidays may have created a lull in the action but the New Year promised to be just as hectic as the old for European leaders and Mrs. Merkel in particular. The head of the International Monetary Fund, Christine Lagarde, arrives on Tuesday evening for talks with the German chancellor. Italy’s prime minister, Mario Monti, comes to Berlin on Wednesday.

Mrs. Merkel and Mr. Sarkozy are scheduled to travel to Rome on January 20th for negotiations with the Italian government ahead of the next European Union summit in Brussels on January 30.

“Everyone would like a grand design rather than a series of small steps going forward, some going backwards,” said André Sapir, an economist and senior fellow at Bruegel, a research group based in Brussels. “Sometimes there doesn’t seem to be a design at all, and that has been unnerving investors being asked to refinance debt both private and public.”

A drumbeat of bad economic news lately has led many economists to predict the imminent return to recession for many of the countries that use the euro. At the same time, European countries and financial institutions need to raise roughly $2.4 trillion in 2012.

Asked whether she feared that ratings agencies would downgrade additional European countries and in the process further spook markets, Mrs. Merkel replied coolly, “Fear does not motivate my political actions.”

The gap between countries with sound finances and those like Italy and Spain that are forced to pay high rates has widened to a chasm of five percentage points or more. Germany on Monday joined the likes of the Netherlands and Switzerland as perceived safe havens where customers of short-term debt are willing to lose money in return for shelter from upheaval and the possibility of even greater losses.

Mrs. Merkel called the plan to stabilize the euro “an ambitious but attainable goal.” She hit several familiar themes, stressing that there were no quick solutions to the euro crisis and that Greece was an exception when it came to debt writedowns, often known as a “haircut,” for private investors. “Our intention is that no country must withdraw from the euro area,” Mrs. Merkel said.

She and Mr. Sarkozy both voiced their determination to press ahead with a tax on financial transactions opposed by Britain, but they appeared to diverge on the timing. Mr. Sarkozy, facing a strong left-wing challenge in his struggle for re-election in May, suggested France could go it alone and challenge other states to follow suit.

French Prime Minister François Fillon said today in Paris that France may present a bill on such a tax in February, hoping that other countries follow. “Someone has to be the first to jump in the water,” Mr. Fillon said.

Mrs. Merkel expressed her support for Mr. Sarkozy’s goal of pressing ahead with a financial-transaction tax, saying that European Union finance ministers should make a formal proposal by March. Although an agreement between the 27 members of the union was preferable, one among the 17 countries that issue the euro was acceptable.

“If Sarkozy loses the election, which is entirely possible, the Socialists would certainly be a more difficult partner for Merkel,” said Frank Decker, a political scientist at the Institute for Political Sciences and Sociology at the University of Bonn. “As a result, she looks for ways that she can strengthen his position.”

Steven Erlanger in Paris contributed reporting

Article source: http://feeds.nytimes.com/click.phdo?i=03e894a586eece162b8f31e8c57c1b91

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Wall Street Follows Europe Stocks Higher

October 12, 2011 by Leave a Comment

Wall Street opened higher Wednesday, following European stocks as investors shrugged off Slovakia’s rejection of Europe’s bailout fund and focused on hopes that a possible workaround solution would be found before a summit of the Continent’s leaders next week.

The advance has come even though Slovakia’s Parliament rejected a bill Tuesday night that would have strengthened the powers of the regional rescue fund, known as the European Financial Stability Fund, to help bail out strapped economies in the euro zone.

Despite the rejection, analysts said markets were confident that the measures would pass. Slovakia’s departing prime minister and her main opponent have said they would work to try to get the bill through Parliament soon.

“The Slovak rejection of the E.F.S.F. is not worrying the financial markets,” said Derek Halpenny, head of global currency research at Bank of Tokyo-Mitsubishi UFJ. Approval was expected ahead of a European Union summit meeting on Oct. 23, he said.

The 16 other countries in the euro area have already signed off on the bill, but the measure requires unanimous support.

There are ways around Slovakia’s opposition, but the move temporarily sets back efforts to address Europe’s debt jam, which has been the most important issue for financial markets for months.

The German chancellor, Angela Merkel, said Wednesday she remained optimistic that euro zone countries would pass an expanded European bailout fund.

That optimism was echoed in stock markets. On Wall Street, the Standard Poor’s 500-stock index was up 1.25 percent in early trading, while the Dow Jones industrial average was up 104 points, or almost 1 percent, and the Nasdaq composite rose 1.34 percent. In Europe, the CAC 40 in France was up 2.3 percent, the FTSE 100 index of leading British shares rose 0.6 percent while Germany’s DAX was almost 2 percent higher by late afternoon.

The euro has also advanced strongly on hopes that Slovakia’s “no” vote will soon be overturned. It was trading 1 percent higher at $1.3797.

Investors were also anticipating a Wednesday afternoon speech by the European Commission president, José Manuel Barroso, where he unveiled proposals on how to make European banks fit enough to sustain the worsening debt crisis.

Elsa Lignos, an analyst at RBC Capital Markets, said that while the commission has no power to make legislation, “it is worth hearing the Barroso proposals and the response they generate.”

Earlier in Asia, Japan’s Nikkei 225 index dropped 0.4 percent. But Hong Kong’s Hang Seng rose 1 percent and South Korea’s Kospi added 0.8 percent. Benchmarks in Singapore, India, Indonesia and mainland China also swung into positive territory.

Oil prices were relatively flat at $85.68 a barrel.

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Austria Passes Expansion of Euro Bailout Fund

October 1, 2011 by Leave a Comment

Despite sustained heckling from far-right legislators that compelled parliamentary leaders to call a temporary recess, the measure was approved by a healthy 117-to-53 margin. The vote meant that Austria agreed to raise its share of the bailout to 21.6 billion euros, or roughly $29.4 billion, from 12.2 billion euros.

The decision in Vienna left just 3 of 17 countries still waiting to approve the measure, which expands not only the size but also the powers of the bailout fund. With Malta and the Netherlands set to vote next week, pressure mounted on Slovakia, viewed by many as the last holdout.

One day after Germany’s Bundestag, or lower house, passed the same measure with a wide majority, Chancellor Angela Merkel was in Warsaw, where she met with Slovakia’s prime minister, Iveta Radicova, on the sidelines of a European Union summit meeting. Ms. Radicova told reporters that she expected Parliament to ratify the fund no later than Oct. 14, Reuters reported.

But the Slovak government’s majority in Parliament rests on four parties with divergent views, and many Slovaks feel that asking poorer Central Europeans to pay for the mistakes of the richer Greeks is unfair. One of the junior parties in Ms. Radicova’s coalition, the Freedom and Solidarity Party, abbreviated in Slovak as SaS, opposes the bailout, but in recent days it has signaled some willingness to compromise.

With Germany’s weight behind the fund, known as the European Financial Stability Facility, political commentators say it is only a matter of time before Slovakia bows under the pressure and approves its own version of the bill.

The need to ratify the July agreement to expand the facility is all the more important in light of the fact that markets have already indicated that even a 440 billion euro fund, or roughly $600 billion, was nowhere close to enough money to fend off speculative attacks against heavily indebted countries, especially if larger countries like Spain and Italy are forced to turn to it for assistance.

Even as national parliaments have moved ahead with ratifying the agreement, Greece’s prime minister, George A. Papandreou, has pressed his case that his country will live up to its commitments to its European partners. Mr. Papandreou visited France’s president, Nicolas Sarkozy, in Paris on Friday.

Greece’s ability to stick to the difficult program of budget austerity has been viewed as crucial if it is to continue receiving aid. Mr. Papandreou also visited Berlin to meet with Mrs. Merkel Tuesday night.

But the euro crisis will never be resolved if debtor countries cannot take credible steps to reduce their national debts, said Norbert Irsch, chief economist at KfW Group in Frankfurt.

But he dismissed calls for Greece to leave the euro. Such a suggestion, he said, “does not sufficiently take into account the fact that the country would be plunged into an even more serious and long-lasting crisis.”

As the debate in Austria indicated, feelings run high on the subject of bailing out neighbors. Members of the far-right Alliance for Austria’s Future unfurled a banner on the floor of the chamber demanding a referendum.

Peter Filzmaier, a professor of political science at the Danube University Krems, said that the far-right parties saw the rescue fund more as an opportunity to score political points than a chance to alter the outcome.

“It was a very emotional debate,” Mr. Filzmaier said. “Austria has an extremely large number of people disinterested in the E.U., and when you’re talking about large sums of money and you don’t understand what is going on you get scared.”

The German news media declared Thursday’s vote a victory for Mrs. Merkel, while asking how far she could push her intransigent coalition for further steps to rescue the currency. Germany’s upper house, the Bundesrat, where delegations from the country’s states must approve legislation, signed off on Thursday’s vote in the Bundestag. But Bavaria’s state premier, Horst Seehofer, said Friday that his state would not support “additional increases or greater risks.”

Mrs. Merkel has faced criticism of her leadership almost from the beginning of the crisis, from the right and the left, domestically and from foreign leaders, including President Obama. She has been attacked in particular for being slow and reactive in dealing with market turmoil and with speculative attacks on fellow members of the euro zone.

The muddling-through approach is criticized by academics, who find that it “does not fit into the worlds of models and textbooks,” said Mr. Irsch, but the German government and the European Central Bank “have acted in a pragmatic way and, in my opinion, also in a fitting manner.”

Article source: http://www.nytimes.com/2011/10/01/world/europe/austria-approves-euro-bailout-fund.html?partner=rss&emc=rss

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