April 19, 2018

German Lawmakers Back Cyprus Bailout

BERLIN — Germany’s lower house of Parliament approved the bailout package for Cyprus on Thursday, bringing to an end to months of debate in Berlin.

Wolfgang Schäuble, Germany’s finance minister, warned lawmakers ahead of the vote that despite its tiny size, Cyprus could still endanger the broader economy of the European Union if its troubles were ignored.

“We must prevent that the problems in Cyprus become problems for other countries,” Mr. Schäuble said. He added that if Cyprus were allowed to go bankrupt, there was a “significant risk” of contagion to Greece and other vulnerable countries in the euro zone.

As expected, a clear majority of 487 out of 602 lawmakers casting ballots voted in favor of the package, which includes €9 billion, or $11.7 billion, in contributions from European Union members. The International Monetary Fund is to contribute an additional €1 billion.

German law requires parliamentary approval of all financial assistance the country extends to other European Union members.

In a separate vote, the German lawmakers also approved seven-year extensions on loans previously granted to Ireland and Portugal.

Germans were further rattled by news last week that Cyprus would need to raise €13 billion — nearly twice the amount the government initially estimated only a month ago — to keep its debt and deficit from spinning out of control and to meet the terms of the bailout. German taxpayers worry they will be called upon to come up with even more money to aid Cyprus.

Germany had insisted in the bailout negotiations that Cyprus reduce the size of its banking industry, that the European contribution be limited in scope and that depositors and investors in Cypriot banks be forced to share the burden. On Thursday Mr. Schäuble underlined that the European contribution would not be expanded, or made directly available to the struggling Cypriot banks.

Compared with most of its European Union partners, Germany continues to achieve economic growth, even if it has been only slight lately. Officials in Berlin said this week that the export-driven economy and the country’s solid public finances would enable Germany to achieve a budget surplus in 2016 — a sharp contrast to the deficits projected for weaker members in the euro zone. Even by next year, Germany expects to have a balanced budget, according to the annual stability program it plans to submit to the European Commission.

On Thursday, Moody’s maintained Germany’s triple-A credit rating, praising its “advanced, diversified and highly competitive economy and its track record of stability-oriented macroeconomic policies.”

Many Germans have grown weary of providing financial support to their fellow Europeans. A report last week by the European Central Bank suggesting that some of the weaker countries have higher wealth per household than Germany stoked public anger, which Mr. Schäuble sought to ease on Thursday.

“In our country, where we do not feel the euro crisis is our daily life, we have to remember that the people in Ireland, Portugal, Spain and Greece are living through a difficult time,” he said. “There are no viable shortcuts on this path, but for those affected it is difficult.”

Article source: http://www.nytimes.com/2013/04/19/business/global/german-lawmakers-back-cyprus-bailout.html?partner=rss&emc=rss

Germany Resists Europe’s Pleas to Spend More

Could, but almost certainly will not. Even if German lawmakers had not made a balanced budget a constitutional obligation two years ago, there is a deep consensus among policy makers and economists that austerity and growth are not enemies. They are comrades.

Jens Weidmann, president of the Bundesbank, the German central bank, was channeling generations of hawkish predecessors last week when he called on the government of Chancellor Angela Merkel to speed up efforts to cut new borrowing close to zero.

“We must quickly achieve a structurally balanced budget,” Mr. Weidmann said in an interview with the Tagesspiegel newspaper. Germany should set an example for the rest of the beleaguered euro zone, he said.

The Bundesbank president speaks for a large swath of the German public, and his comments suggest that President Nicolas Sarkozy of France and Prime Minister Mario Monti of Italy should not expect more of a financial commitment when they meet with Mrs. Merkel in Berlin this week. Mr. Sarkozy’s visit is Monday and Mr. Monti’s is Wednesday.

“One of the lessons of the crisis,” Mr. Weidmann said, is that cutting budget deficits “should be postponed as little as possible.”

That view annoys many people outside Germany, who see it as another example of the country’s lecturing the rest of Europe while putting a priority on its domestic interests. Germany, with the lowest borrowing costs and strongest economy among the big European countries, should lend the rest of Europe a hand, they say.

“Germany is the only country that has this freedom, and if they don’t use this freedom, that is bad,” said Éric Chaney, chief economist at AXA Group, a French insurer.

With interest rates on German bonds close to zero, Mr. Chaney noted, should the country not be using this cheap money to invest in education and infrastructure and to promote long-term growth while stimulating demand around Europe?

And Germany should do so for its own good, he added. “If Germany has a problem, it is the instability of the euro,” Mr. Chaney said.

Evidence of a coming downturn in the euro zone remains strong, despite some economic indicators in recent weeks that have been better than expected. Retail sales in the euro area fell nearly 1 percent in November from October, according to data released Friday, while unemployment remained at 10.3 percent. The European Commission’s confidence indicator fell in December for a 10th month in a row.

Despite the worsening circumstances — which most economists schooled in the thinking of John Maynard Keynes see as a compelling reason to loosen monetary reins and increase government borrowing — German fiscal policy is already effectively set in stone. In 2009, the country adopted a constitutional “debt brake” that requires a nearly balanced national budget by 2016.

Berlin can achieve that requirement only if it starts reducing deficit spending now. Mr. Weidmann called for the government to achieve that goal sooner.

There are sightings of Keynesians from time to time at German universities and research institutes, but they are a rare breed. Mr. Weidmann represents the prevailing school of thought, as does Jörg Asmussen, a former high-ranking official in the German Finance Ministry who joined the executive board of the European Central Bank last week.

Both studied at the University of Bonn under Axel A. Weber, a hawk’s hawk who was Mr. Weidmann’s predecessor as president of the Bundesbank.

Mr. Weber, in turn, followed in the footsteps of guardians of fiscal and monetary probity like Otmar Issing, a former official at the Bundesbank and E.C.B. who remains a towering figure in German economics. On Friday, the Frankfurter Allgemeine newspaper devoted a full broadsheet page to an essay by Mr. Issing calling for rigid fiscal discipline to restore confidence in the euro.

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Beleaguered Greek Government Presents Austerity Steps to Parliament

ATHENS — Greece provided details on Friday of a four-year economic plan designed to extract the country from its deepening debt hole, including new taxes as well as additional cuts to public spending and a winnowing of the civil service.

The plan, submitted in Parliament late Thursday, aims to raise 6.4 billion euros, or $9.2 billion, this year alone, Finance Minister George Papaconstantinou said at a news conference on Friday.

“Efforts will be based chiefly on reducing spending, not on increasing revenue,” he said. He promised a vote on the measures by the end of the month even as protests by opposition parties, unions and the public mount.

“We have to continue this difficult course of fiscal adjustment until we emerge on the other side,” Mr. Papaconstantinou said. Adoption of the new measures is “a prerequisite for further emergency funding,” he added.

Although Greece succeeded in cutting its budget deficit by 12 billion euros last year, an upward revision of the deficit to 10.5 percent of gross domestic product, from 9.5 percent, and a deeper-than-expected recession has made new measures unavoidable if Athens is to meet its deficit-reduction goals this year.

The European Union and the International Monetary Fund promised Greece 110 billion euros in loans last year and are now discussing an additional bailout to save Greece from default and avert a crisis in the euro zone.

But an impasse over the next phase of aid for Greece deepened on Friday after German lawmakers endorsed plans to require private investors to share the cost and the European Central Bank hardened its opposition to that.

Jürgen Stark, a member of the bank’s executive board, offered no indication Friday that it was open to compromise with political leaders on the issue of granting Greece easier terms. “We don’t participate in any negotiations,” he said in Frankfurt.

The debate has put the European Central Bank on the defensive over criticism that its opposition to a restructuring of Greek debt is colored by its own holdings of the country’s bonds and the losses it would suffer from any restructuring.

Responding to such critics, Mr. Stark said that some outside estimates of the E.C.B.’s exposure to questionable assets were greatly exaggerated. “These risks are manageable,” he said, but declined to say how big the risks were. The bank has purchased Greek bonds on open markets and also accepts them as collateral for low-interest loans to commercial banks.

The German Bundestag on Friday authorized the government to take part in a new aid plan for Greece, but only after Wolfgang Schäuble, the finance minister, promised that taxpayers would not bear the burden alone. “We must insist on participation by the private sector,” Mr. Schäuble said during the debate in the Bundestag, the lower house of Parliament.

German taxpayers resent having to pay to rescue Greece, while Greek citizens are angry at the hardships created by the austerity program that was a condition of aid. The tensions have shaken support for the European Union.

In what seemed an attempt to defuse that tension, Mr. Schäuble took pains to praise Greece’s efforts to modernize its economy while enduring an economic slump. “The extraordinary consolidation effort that Greece has undertaken is often overlooked in the public debate,” he said.

Details of that effort disclosed on Friday included more cutbacks and tax increases.

Over the next few years, the civil service, which employs about 700,000, will be reduced by a quarter, Mr. Papaconstantinou said, adding that the ratio of one new hire for every five departures would become one for 10.

The minister also heralded cuts in Greece’s spending in the military sector, which accounts for about 4 percent of gross domestic product.

The new taxes outlined by the minister include a graded “solidarity tax,” ranging from 1 to 4 percent according to income, with an additional 3 percent tax on the income of civil servants. That money is to go toward an emergency fund for the swelling ranks of the unemployed, currently at 16 percent.

The incomes of civil servants have already been reduced up to 20 percent over the last year, but the fact that their jobs are permanent puts them in a privileged position, the minister said.

“They don’t face the same risk of unemployment as those in the private sector,” he said.

An emergency tax will also be imposed on the owners of large properties, yachts and swimming pools, the minister added.

Niki Kitsantonis reported from Athens and Jack Ewing from Frankfurt.

This article has been revised to reflect the following correction:

Correction: June 10, 2011

An earlier version of this article incorrectly referred to the four-year plan as a three-year plan.

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