In the (euro) zone
Merkel May Emerge Victorious in EU Battle over Greece
Carsten Volkery and Philipp Wittrock, spiegel
For weeks, Merkel has stood mostly alone with her insistence that the International Monetary Fund be seen as a savior of last resort for Greece. Now, though, she has received support from Paris and may emerge the winner in the most recent round of Greece poker.
She has been called "Madame Non" -- sometimes "Madame Nyet." The "Iron Chancellor," an allusion to former British Prime Minister Margaret Thatcher, had also become popular. No matter what people called her in recent weeks, however, it had become clear by early this week that Chancellor Angela Merkel's reputation in Europe has suffered recently. She had taken up a lonely position in her fight against demands from the rest of the European Union to promise financial assistance to cash-strapped Greece should the need arise.
But, suddenly, there is new movement in the ongoing poker game over Greece. And it seems likely that Merkel will emerge as the victor.
Shortly before the summit meeting of European heads of state on Thursday and Friday in Brussels, it is seems likely that the EU will accommodate the chancellor on a key issue in the matter of assistance for Greece: The French government says it is open to including the International Monetary Fund (IMF) in an emergency plan for Athens, an idea Merkel has repeatedly brought up recently. Given the prevailing reservations about a euro-zone country turning to the IMF, the chancellor could chalk up Paris's concession as a resounding success.
France and most other EU countries had long rejected the idea of IMF intervention. But now that Merkel apparently has the support of French President Nicolas Sarkozy, as the Süddeutsche Zeitung reports on Wednesday, the rest will likely be easier to convince. Should help for Greece become necessary, some EU countries could contribute bilateral loans in addition to a financial injection from the IMF. In government circles in Berlin, there was cautious optimism about "initial signals from various capitals" that officials there could imagine financial assistance coming from the IMF...
(24 March 2010)
Portugal to wield axe after downgrade
Peter Wise, Financial times
Portugal's parliament will vote today on a four-year austerity programme after international confidence in the nation's public finances was shaken by a downgrade of its sovereign debt rating.
The move by Fitch ratings agency could increase pressure for a eurozone deal on financial assistance for Greece, amid fears that the debt crisis could spread to other southern European countries.
Fernando Teixeira dos Santos, Portugal's finance minister, called on opposition parties yesterday to send an "unequivocal signal" that the minority government's plan to cut a soaring budget deficit had cross-party support.
His appeal came as Fitch cut its rating for Portugal's long-term debt by one notch from AA to AA-, citing concern over the potential impact of the global crisis on economic growth and government debt...
(25 March 2010)
The euro: beggar-thy-currency
ilargi, the automatic earth
Even though I was merely a child, it was very clear to me what the problem (or at least one of them) was in the Europe I grew up in. At every border crossing, there'd be a line if trucks often miles long waiting to be allowed through. And then the drivers would often have to wait in line again to change their money for the local currency. Since the countries can be quite small, it would be no exception for trucks to spend days covering a distance they could have covered in mere hours (imagine that in the US!).
So it was no surprise to me that Europe embarked on an economic union, first with the Schengen Agreement in 1985, then the Maastricht Treaty of 1993, and finally the phase-in of the Euro between 1999 and 2002. It all simply makes a lot of sense. There are many people today who insist that the union should have been a political union as well, but that was never going to happen, anymore than a cultural one. But should that have prevented finding a solution for those long lines of trucks? I'm inclined to say no. Nor do I think there's a lot of anger or resentment among Europeans in general about the way the EU has functioned so far. The opaque additional layer of bureaucracy in Brussels is despised, for sure, and many older people will always have problems with using a new currency, but other than that, things seem to run pretty smoothly. Even though I left Europe in the early 1990's, I'm pretty sure I didn't miss out on mass protests in this regard.
In 2002, when the euro became a real currency, Germany was not doing too well economically. The addition of the former East Germany had put a heavy financial toll on the country, and the inclusion of more -mostly poorer- countries into the EU cost a lot of money as well. Germany therefore has no housing boom to speak of in the past decade, it was too busy trying to get on its feet.
Today, Germany is very much back on those feet. So much so, in fact, that in the debate about Greece, French Finance Minister Christine Lagarde told the Germans in so many words that they are too successful. She argued two remarkable things: first, Germany should stop exporting so much, and running its economy so much more efficiently than other EU members, and second, it should boost internal demand, i.e. the German population should buy more stuff, some of which would presumably need to be produced in France and other weaker nations.
The "please stop doing so well" argument has the proverbial snowball in hell chance of being taken seriously in Berlin. And for a country to force its citizens to consume things they apparently don't think they need? Does that even merit an answer?
Germany wants to weaken the euro. Like all main exporters (it was, and may still be, no.1), the country was hit hard by the contraction in trade we’ve lived through over the past 2-3 years. And the Germans had a second problem: the Americans brought down the value of the US dollar by about 20% between March and December 2009 (after an earlier decrease of over 30% between late 2005 and mid 2008). And the Germans have decided they've seen enough of that. Ironically, the low dollar means that even countries within the EU will turn to American products. Germany wants the euro at, or just above, par with the US dollar. And they are using the Greek crisis to achieve this. If that doesn’t do it, they'll find other ways. They have no choice...
(1X March 2010)
Europe markets rattled as Fitch lowers Portugal's credit rating
James Moore, The Independent
Portugal sent shivers through European markets yesterday after fears about its ability to repay its debts prompted the ratings agency Fitch to downgrade its credit rating.
Fitch – one of the "big three" agencies, along with Standard & Poor's and Moody's – cut Portugal by one notch from AA to AA minus, with a negative outlook. Douglas Renwick, associate director of Fitch's sovereign debt team, said the decision was motivated by concerns about Portugal's economic prospects, which he said were weaker than those of the other EU member states. It put Portugal's already shaky public finances under pressure. Mr Renwick added: "The downgrade reflects significant budgetary under-performance in 2009. The general government deficit in that year was 9.3 per cent of GDP, versus 6.5 per cent of GDP forecast by Fitch last September. This has significantly increased the scale of the fiscal challenge to stabilise and reduce debt over the medium term."
Stock markets across Europe took a tumble immediately after Fitch's announcement, although they recovered ground later on. The euro also suffered, falling by 1.34 cents, or 1 per cent, against the dollar to $1.3362.
The single currency fell against the pound as well, losing half a penny to 89.325p. That was because the downgrade heightened concerns that the debt troubles that have plagued Greece are spreading to the eurozone's other weakened economies.
Portugal holds an unwelcome place among the so-called "Pigs" – an unflattering acronym used to group together heavily indebted European countries with weak economies. Also included are Ireland, Greece and Spain, although some argue that Italy should be added, which would make the acronym "Piigs"...
(25 March 2010)