March 28, 2024

Angela Merkel Nears a Remaking of Euro Zone

It was the kind of impervious reaction to market gyrations that many critics said was at the core of the euro crisis. Mrs. Merkel, they say, has rarely acted quickly or boldly enough to halt the downward spiral of the euro.

To American officials, Mrs. Merkel, 57, seems at times shockingly aloof about market turmoil. But as European leaders prepare for crucial meetings this week in Brussels, what may have seemed like timid or even bumbling leadership is looking more like a consistent strategy of brinkmanship aimed at remaking the euro zone in Germany’s likeness.

At critical junctures throughout the crisis, Mrs. Merkel has resisted appeals to appease the financial markets by lowering borrowing costs. Instead, she has wielded the pain of soaring interest rates as a cudgel to extract painful changes — and demand leadership changes — in countries like Greece and Italy that have proven resistant to those changes in the past.

It is a clever strategy, one that allows her to juggle divergent interests at home, where the German people do not want her offering more guarantees of taxpayer money to combat the sovereign debt crisis, and abroad, where they are begging her to do so. It is also highly risky.

If the euro is preserved and Europe moves toward a more unified future, Mrs. Merkel will probably win the lion’s share of the credit, perhaps one day being hailed as Europe’s savior. But if her prescriptions turn out to be inadequate, she could reap the blame for presiding over the collapse of the euro, with untold consequences for the world economy.

Either way, Mrs. Merkel, a steely champion of austerity and fiscal discipline, seems to have assumed the nickname of her 19th-century predecessor Otto von Bismarck: the Iron Chancellor.

Mrs. Merkel is in nearly daily contact with Obama administration officials who hope she will master the crisis — or, at the very least, win tacit approval for the European Central Bank to step in more forcefully — even though she deflects their demands for more aggressive action.

Treasury Secretary Timothy F. Geithner flew to Germany on Tuesday, meeting first in Frankfurt with the president of the European Central Bank, Mario Draghi, and the president of the Bundesbank, Jens Weidmann. He then spent an hour with Wolfgang Schäuble, his German counterpart, at the Finance Ministry in Berlin. Mr. Geithner said he was “very encouraged by the developments in Europe in the past few weeks.”

Mrs. Merkel’s leadership has come at a high cost for indebted countries, especially those on the periphery, with cuts in public spending biting just as joblessness has surged. Youth unemployment in Spain is nearly 50 percent, a fact Mrs. Merkel raises with domestic audiences when cautiously selling more intervention.

The treaty changes she and President Nicolas Sarkozy of France proposed in Paris on Monday would have been inconceivable at the beginning of the crisis, since it requires states to cede a significant degree of economic sovereignty. It is a process that many observers, in particular the populist British press, say is well underway. German dominance of the euro zone, they say — with Mrs. Merkel as the unofficial but unchallenged leader of Europe — has in fact already arrived.

Silvio Berlusconi’s resignation as Italy’s prime minister was interpreted as an omen for Europe’s German-directed future. And confidential draft proposals of Ireland’s December budget were found to have circulated among lawmakers in Berlin last month before opposition lawmakers in Dublin saw them.

Despite her global prominence, Mrs. Merkel, an East German physicist turned politician, cuts a modest figure in Berlin. She still lives with her media-shy second husband, a quantum chemist, in the same apartment in the central Mitte District that they lived in before she became chancellor. Her daily commute carries her across the former path of the Berlin Wall, a reminder of her years trapped behind it.

The future of the European Union could well be decided at this week’s summit meeting in Brussels. But a routine day in Mrs. Merkel’s schedule here in the German capital illustrates the unique demands on her, as both a leader who is the unlikely fulcrum of the world’s financial future and as someone who must play the role of legislator and party leader.

Last week, she gave a closely watched government address in the historic Reichstag building, where she compared the steps to strengthen the 17-member currency zone to a marathon.

Annie Lowrey contributed reporting.

Article source: http://www.nytimes.com/2011/12/07/world/europe/angela-merkel-nears-a-remaking-of-euro-zone.html?partner=rss&emc=rss

Bucks Blog: The Industry With the Most Steadfast Retirement Savers

What is it about utility workers? They apparently are among the country’s most dedicated retirement savers, according to new research from Vanguard.

Larger numbers of employees of small utility companies tend to save more in their 401(k) plans than workers in many other industries, the study found. Those at utility firms with fewer than 1,000 employees had a 92 percent participation rate. (Employees at large mining companies followed, with an 88 percent participation rate.) Vanguard plans as a whole had a 74 percent average participation rate.

On average, participants in the plans of both small and large utilities saved a higher percentage of their incomes, too: their 9 percent and 8.2 percent average contribution rates, respectively, surpassed the 6.8 percent average rate for Vanguard plans over all.

The study did not delve into the details of why certain industries were better than others at signing up employees and encouraging them to save. But longer-term employees in profitable industries tend to save more in general. And it may also be that some lines of work attract people who are inclined to be better long-term planners.

Utilities, for instance, tend to have workers who can map out gas production for the next 20 years. They may also apply those skills to their own retirement-saving efforts. “Utilities have engineers, armed with their spreadsheets,” said Steve Utkus, head of Vanguard’s Center for Retirement Research.

The industry studies are part of Vanguard’s annual How America Saves report, which examined overall patterns of more than three million participants in plans administered by Vanguard.

The report notes that overall plan participation dropped a bit, as the tough economy canceled out increases in participation due to automatic enrollment. (The report was released before the most recent stock market turmoil.)

Do Vanguard’s numbers on your industry surprise you?

Article source: http://feeds.nytimes.com/click.phdo?i=804d59e513130bbfb3d5e74b153be0be

Markets Weigh Concerns Over Italy’s Debt

As investors fretted about a new wave of financial instability, the euro slumped to its lowest level since March and borrowing costs rose again for Europe’s weaker economies.

In midday trading, the Dow Jones industrial average was flat, with a gain of just 5.26 points, to 12,511.02 points. The Standard Poor’s 500-stock index was also largely unchanged, at 1,320.27, and the Nasdaq composite was down 9.91 points, or 0.35 percent, to 2,792.71.

European indexes, after declining sharply in morning trading, regained some ground in the afternoon. The Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 0.58 percent. The FTSE 100 index in London slid 1.02 percent.

In the day’s most dramatic action, the main Italian stock market index slid more than 4 percent in morning trading, before bouncing most of the way back, after Giulio Tremonti, the economy minister, returned to Rome early from a meeting of euro zone officials to take charge of discussions on new austerity measures and the government successfully sold one-year debt.

Mr. Tremonti is considered by many investors to be instrumental to Italy’s bid for market credibility. Silvio Berlusconi, the embattled prime minister, led investors to ditch Italian debt last week when he suggested Mr. Tremonti might be forced out of the government.

Italy has begun moving into the front of investors’ consciousness, but the question of how to aid Greece remains unsolved. In a letter to Jean-Claude Juncker, the president of the euro zone finance ministers’ group, the Greek Prime Minister George Papandreou complained that market turmoil was undermining his government’s efforts at economic reform, and called for “collective forceful decisions” from his European partners.

European finance officials met for six hours Monday in Brussels but failed to resolve a long-running dispute over private sector involvement in a second bailout for Greece.

“If Europe does not make the right, collective, forceful decisions now, we risk new, and possibly global, market calamities due to a contagion of doubt that could engulf our common union,” Mr. Papandreou wrote.

Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a research note that Greece was not the euro zone’s main problem. “Instead, the massive contagion from the small periphery to the big bond markets of Italy and Spain in the last four trading days has turned into the real problem,” he said.

Asian shares were down across the board. The Tokyo benchmark Nikkei 225 stock average fell 1.4 percent. The main Sydney market index, the S. P./ASX 200, fell 1.9 percent, In Hong Kong, the Hang Seng index fell 3.1, and in Shanghai the composite index fell 1.7 percent.

Data released Tuesday showed that bank lending in China had remained more buoyant than expected in June, fanning expectations that Beijing may tighten lending requirements or raise interest rates again in its battle to contain inflation.

The Bank of Japan governor, Masaaki Shirakawa, said that global economic growth was “slowing somewhat,” Reuters reported from Tokyo. “The U.S. economy faces severe balance sheet adjustments, and sovereign problems pose a risk to Europe,” he said.

Also on Tuesday, Moody’s issued a list of Chinese companies that raised “red flags” at the ratings agency because of possible governance or accounting risks, causing the shares of those companies to tumble.

New York crude oil futures fell 0.4 percent to $94.76 a barrel.

The euro slumped, falling to $1.3992 from $1.4029 late Monday. The dollar fell to 79.64 yen from 80.26 yen, signaling that Japanese investors were becoming more risk averse and repatriating overseas funds.

The worries about Italy have further shaken already fragile global market sentiment. Even though Italy retains solid debt ratings, a sound banking system and a relatively small budget deficit compared to the size of its economy, it is plagued with high debt, feeble growth and political paralysis.

The jitters prompted the Italian stock market regulator on Monday to impose emergency rules against short selling after shares in Italian banks slumped for a fifth straight session.

The cost of insuring Italy’s sovereign debt against default surged to an all-time high, and the interest on its 10-year bond leaped to 5.8 percent before falling back.

“The current escalation of the euro area periphery crisis is the third period in which the problems facing Greece, Ireland and Portugal have seriously threatened more serious contagion in the euro area,” Paul Robinson, an analyst at Barclays Capital, wrote in a note.

As grave as the situation is, however, he added, “the previous episodes during which Spain and Italy were significantly affected proved temporary, and the situation facing both economies is far less serious than in Greece’s case.”

Bettina Wassener reported from Hong Kong. Niki Kitsantonis contributed reporting from Athens.

Article source: http://www.nytimes.com/2011/07/13/business/worries-about-italys-debt-drag-down-asian-markets.html?partner=rss&emc=rss