We need your help now
Support from readers like you keeps The Journal open.
You are visiting us because we have something you value. Independent, unbiased news that tells the truth. Advertising revenue goes some way to support our mission, but this year it has not been enough.
If you've seen value in our reporting, please contribute what you can, so we can continue to produce accurate and meaningful journalism. For everyone who needs it.
Sign in. It’s quick, free and it’s up to you.
An account is an optional way to support the work we do. Find out more.
By continuing, you are indicating that you accept our Terms of Service and Privacy Policy.
THE GERMAN AND Italian leaders have pledged to do everything to protect the eurozone, adding to a string of assurances over recent days that Europe is determined to get a grip on the continent’s debt crisis — but their governments again gave no details of any action.
Sunday’s statement from Germany and Italy came before markets open for a week in which close attention will be focused on Thursday’s meeting of the European Central Bank’s policy-setting governing council. Last Thursday, ECB President Mario Draghi said the ECB would do “whatever it takes” to preserve the euro — and markets surged on hopes of action.
Chancellor Angela Merkel and Italy’s Premier Mario Monti spoke by phone Saturday and “agreed that Germany and Italy will do everything to protect the eurozone,” German government spokesman Georg Streiter said. Monti’s office said they agreed to “take all necessary measures to protect the eurozone.”
No specifics
That was nearly identical to a statement issued Friday by Merkel and French President Francois Hollande, which came in the wake of Draghi’s comments.
None of the leaders have said anything about any specific action. But the comments raised expectations that the ECB might step in to buy Spanish and perhaps Italian government bonds to lower the countries’ borrowing costs, which have been worryingly high in recent weeks.
Another possibility might be for the eurozone’s temporary rescue fund, the European Financial Stability Facility, to buy bonds — though Merkel’s finance minister, Wolfgang Schaeuble, has dismissed talk that Spain might apply to the fund for such help. He told the Welt am Sonntag newspaper that “there is nothing to this speculation.”
Italy and Spain have the eurozone’s third- and fourth-largest economies respectively, behind Germany and France.
Europe’s bailout fund
Merkel and Monti agreed that decisions made by last month’s European Union summit “must be implemented as quickly as possible,” Streiter said, again echoing Friday’s Merkel-Hollande statement.
Those included allowing Europe’s bailout fund — once a new, independent bank supervisor is set up — to give money directly to a country’s banks, rather than via the government. Countries that pledge to implement reforms demanded by the EU’s executive Commission also would be able to tap rescue funds without having to go through the kind of tough austerity measures demanded of Greece, Portugal and Ireland.
Merkel invited Monti to visit Berlin in the second half of August and he accepted the invitation, the two governments said.
The assurances come as concern flares again about Greece. International debt inspectors are scrutinizing Greece’s finances and its progress in implementing unpopular budget cuts and reforms demanded in exchange for the rescue loan program that is keeping the country afloat.
Greek officials have called for more time to implement the measures, but patience among creditors is running short. If the inspectors’ report, expected in September, is damning, Athens could stop receiving loans and face bankruptcy and an exit from the 17-nation euro.
“The aid program is already very accommodating. I cannot see that there is still scope for further concessions,” Germany’s Schaeuble was quoted as telling Welt am Sonntag.
Austerity efforts
As part of its austerity efforts, Greece has achieved a remarkable reduction of its budget deficit from 15.8 percent in 2009 to 9.1 percent last year. However, the country is considerably off-target in other areas of reform.
Athens largely blames this on a deeper-than-anticipated recession. However, a political crisis sparked by fierce rivalry among Greece’s main political parties stalled the reforms for three months, and a three-party coalition finally emerged in June after two inconclusive elections.
Schaeuble said that “the problem did not arise because of flaws in the (rescue) program but because it was insufficiently implemented by Greece.”
“It doesn’t help to speculate now about more money or more time,” he said.
Germany’s vice chancellor, Economy Minister Philipp Roesler, openly questioned last week whether Greece would satisfy the conditions to receive further aid and said the prospect of a Greek exit from the euro has “lost its horror.” He defended those comments in an interview broadcast Sunday.
“There can be no discounts on reforms,” he told Deutschlandfunk radio. “And that means: no further payments if the reforms are not fulfilled.”
To embed this post, copy the code below on your site
Another week of all mouth and no action. These EU leaders really are sleepwalking into economic meltdown. If their pledge to do “everything we can” involves more public spending cuts and very little stimulus, it won’t be long before were looking at a complete break-up of the Eurozone.
I’m sick of hearing about this, WHY don’t they just sort out the mess. Four years on and still no progress. Stupid politicians. I’m under the impression they just want people to live in Austerity.
Without a central bank willing to print money, the crisis will get worse.
Those people are supposedly the brains of the world surrounded by supposedly top notch advisors and yet 4 years on no solution were found. Is that a joke!!!!
#EuropeShamble
Wouldn’t be depending on Italy to save the Euro….sure they’re broke as much as we are.
That is exactly the point. But the current mechanisms of the Spanish bailout require Italy to borrow money on the bond market at 5-6% interest and lend to Spanish banks at 3%. Italy is nearly bust and it is required to put money into Spanish banks at a loss. You could not make this stuff up!
The Eurozone is fundamentally flawed, has been from the start. A currency union is not feasible while retaining the level of sovereignty that the EU national states enjoy. Further integrations are the only way of saving the Euro and this was proven with the market reaction when the Eurozone countries pledged to move forward with the integration of banking sector. But even this step (belated and weak in the context of current crisis) was put on the long finger and there are no signs of political appetite for political integration. In fact the entrenchment and political bickering took place instead. In this arrangement, the ECB is powerless because it is not backed by a power of taxation and does not have (seemingly) unlimited balance sheet. This is why ECB has to be careful with the assets it is taking as collateral. This simple truth has been pointed out in the EU Parliament (by Nigel Farage, who else). In case of Greek default or exit, the ECB will have a 400b hole in the balance sheet and the only way to avoid insolvency will be to have a cash call from member states (which include Ireland, Portugal, Italy and Spain). This reality (rather than its mandate which can be walked over as Europe has a tradition of not honoring its own rules) is preventing the ECB from engaging in a massive scale government bond purchases. The only feasible way out are Eurobonds but the Germans, with the negative interest on their sovereign bonds) is very unlikely to agree to this move without further political integration.
have your say