THE ASTUTE BLOGGERS: MERKEL HOLDS THE FUTURE OF EUROPE IN HER HANDS

Monday, August 15, 2011

MERKEL HOLDS THE FUTURE OF EUROPE IN HER HANDS

The European Central Bank (ECB) said Monday it bought a record 22 billion euros ($32 billion) of government bonds last week, trying to ease a eurozone debt crisis threatening Italy and Spain.

The ECB announced earlier this month that it would resume its bond buy-back programme, which it suspended five months ago, to help eurozone countries hard hit by financial market volatility as they struggle to stabilise their public finances.

This brings to 96 billion euros the total amount the ECB has so far devoted to the programme.

ITEM 2 - NPR

Within weeks, Europe's spreading debt crisis will force Germany to decide on one of the most critical questions in the Continent's postwar history: Will currency union be strengthened or weakened?

Germany, with the biggest and healthiest economy, has to make the call, and this has prompted a fierce national debate.

The 17 European countries that use the euro as their common currency have such widely varying debt burdens that they cannot survive as a single eurozone unless the strongest rescue the weakest.

The cost of that intervention, however, could conceivably approach 1 trillion euros ($1.45 trillion) and would necessarily involve a major shift in governance authority from individual states to the European power center in Brussels.

Without Germany's wealth and credit standing, nothing can happen. But for Germany to give its blessing to a eurozone rescue mission, German leaders would have to compromise on core principles of thrift and sovereignty that until now they have fiercely defended.

ITEM 3 - BUSINESS WEEK

Unprecedented bailouts by governments totaling 365 billion euros ($522 billion) in emergency loans and ECB bond purchases have failed to stamp out the crisis. Faltering investor confidence may overcome the unwillingness of euro leaders to forge a U.S.-style fiscal union. Opponents don’t want to relinquish control of their own budgets or risk the higher borrowing costs that would result.

French Banks

Last week’s market volatility prompted Sarkozy to return to Paris from his vacation for a day to meet top officials and outline an accelerated schedule to announce 2012 budget cuts. It forced Bank of France Governor Christian Noyer to issue a statement that banks were solid and well-capitalized.

As the week ended, Italy announced extra budget cuts that were demanded by the ECB, and Finance Minister Giulio Tremonti repeated his endorsement of euro bonds. That view is shared by counterparts including the head of the group of euro-area finance ministers, Luxembourg’s Jean-Claude Juncker.

A French official last month said there isn’t enough coordination among national economic policies to justify jointly sold bonds.

No ‘Unlimited Support’

German Finance Minister Wolfgang Schaeuble told Der Spiegel in an interview published on Aug. 13 that he opposed unlimited aid, including joint borrowing. “There is no collectivization of debt or unlimited support,” he told the German magazine.

Merkel last directly addressed the topic in 2010, telling reporters in Berlin on Dec. 6 that EU treaties don’t “allow euro bonds, as far as we’re concerned.”

Since opposing any financial aid for Greece in early 2010, Germany has bowed to the requirements of the moment. Officials have since indicated the rejection of euro bonds isn’t ironclad.

Deputy Foreign Minister Werner Hoyer said in a July 20 interview Germany may not resist common bonds “forever” if the euro area were threatened. While euro bonds “are not the right solution for now,” the government is talking in terms of “the foreseeable future” rather than on a permanent basis, Peter Altmaier, deputy parliamentary leader of Merkel’s Christian Democrats, said on Deutschlandfunk radio yesterday.

I PRAY MERKEL - BORN IN EAST GERMANY - REMEMBERS THAT AFTER UNIFICATION, THE NEW GERMANY DID NOT EMULATE THE EAST.