In a rare concession, the German Chancellor admitted that austerity alone would not solve the crisis but she insisted that the wave of political opposition to fiscal discipline was wrong.
“We’re not saying that saving solves all problems,” Ms Merkel said at a conference in Berlin. “[But] you can’t spend more than you take in. You can’t live your whole life this way. Everybody knows this.”
If Spain’s crisis deepens Europe’s recession, it could tip the entire world economy into a stubborn slump. The ramifications would be enormous, including: reduced odds of Barack Obama’s reelection, assuming a weaker U.S. recovery; less political cohesion and more social unrest in Europe (even now, the European Union’s unemployment rate is 10.2 percent); and growing pressures in many countries for economic nationalism and protectionism.
Spain is suffering a hangover from what economist Desmond Lachman of the American Enterprise Institute calls “the mother of all housing booms.”
President Sarkozy, whose personal unpopularity dominated the campaign, is the first head of state to come second in a first-round poll since France switched to presidential politics 50 years ago. Even a barn-storming performance by Mr Sarkozy in TV debates with Mr Hollande in the next two weeks seems unlikely to save his presidency in the two-candidate, second round on 6 May.
In a speech to ecstatic supporters in his fiefdom in Tulle, south-west France, Mr Hollande said: “I am now in a position of strength to be the next President of the Republic…This vote is a disavowal of the policies, and the personal behaviour, of the outgoing candidate, whose campaign in recent weeks has finally served the interests of the National Front.”
…the team around him has quietly started to have doubts about victory, and is debating the best strategy to try to overcome serious odds.
Mr. Sarkozy is in deep trouble and is looking, for now, as if he could be the first one-term French president since 1981. He appears to be running neck and neck with his main challenger, the Socialist candidate François Hollande, in the first round of voting on Sunday, when 10 candidates are competing. But all the opinion polls show Mr. Sarkozy losing to Mr. Hollande in a face-off two weeks later.
His possible defeat carries implications that would radiate far beyond Paris. Mr. Sarkozy has had contentious but valuable relationships with Chancellor Angela Merkel of Germany, a fellow conservative, on European and euro zone issues; with the British on defense issues, including the Libyan war; and with President Obama on issues involving Iran and Israel, NATO and Russia.
I fully intended to ignore Spain this week. Really, truly I did. I had my letter all planned, but then a few notes drew my attention, and the more I reflected on them, the more I realized that the inflection point that I thought the European Central Bank had pushed down the road for at least a year with their recent €1 trillion LTRO is now rushing toward us much faster than ECB President Mario Draghi had in mind when he launched his massive funding operation.
So, we simply must pay attention to what Spain has done this week ”“ which, to my surprise, seems to have escaped the attention of the major media. What we will find may be considered a tipping point when the crisis is analyzed by some future historian. And then we’ll get back to some additional details on the US employment situation, starting with a few rather shocking data points. What we’ll see is that for most people in the US the employment level has not risen, even as overall employment is up by 2 million jobs since the end of the recession in 2009. And there are a few other interesting items. Are we really going to see 2 billion jobs disappear in the next 30 years?
Is the euro crisis back with a vengeance, or do investors have a needless case of anxiety?
Until very recently, the gloom over the Continent had seemed to be lifting, with the conclusion of Greece’s second bailout and the calming effect on the financial sector of cheap loans from the European Central Bank. But last week’s jump in borrowing costs for Spain and Italy provided a clear signal that the euro’s problems are far from solved….
If I read my Twitter feed correctly, Jorg Asmussen, the German representative on the European Central Bank’s executive board, thinks that the ECB has already played its part as far as saving the euro is concerned with last December’s LTRO intervention; it’s now up to national governments to complete the process, he says, by undertaking the necessary structural reform (Mr Asmussen has been speaking at the Institute for New Economic Thinking conference in Berlin).
As is becoming ever more common when it comes to euroland, it’s a view which is quite at odds with the facts. True enough, the ECB’s surprise liquidity operation did succeed in dousing the crisis, at least temporarily. A Lehman’s style meltdown was averted. But the idea that the ECB can now sit back and let the politicians do the rest is surely deluded.
The Spanish reading public now has a very good grasp of the fundamental realities of EMU. This will have consequences. Spain is not on the fringes of the Balkans, terrified of being cast into Ottoman banishment. It is not a small country that can be pushed around for year after year.
How and when all this will end is anybody’s guess but I have suspected for a long time that Spain is the lynchpin of the system. The intellectual atmosphere has changed entirely. Politics must surely follow.
Spain’s first general strike for 18 months has been well-supported, as citizens protest against the government’s labour reforms and austerity plans.
Protests began early, with demonstrators clashing with police in several cities as they tried to disrupt buses and prevent lorries arriving at, or leaving, wholesale markets. Over 50 people were arrested, and a small number treated for injuries.
Unions say they were pleased with the turnout today. Transport links have been badly affected, with hundreds of flights cancelled, and trains and buses delayed.
Read it all and look at the pictures.
Update: There is more there as well.
Prime Minister Mariano Rajoy will unveil the most austere budget since before Spain’s return to democracy in 1978, risking a deeper recession in a bid to avoid succumbing to Europe’s debt crisis.
“There’s interest in seeing how they are going to manage this particular trick of cutting the budget so aggressively,” said Harvinder Sian, an interest-rate strategist at Royal Bank of Scotland Group Plc in London, during a telephone interview. “The recession will be dramatic.”
European leaders are braced for the eurozone’s first ever sovereign default this week as Greece’s efforts to secure a €206bn (£172bn) “voluntary” bond swap looks increasingly unlikely.
Authorities in Athens are ready to enforce the controversial collective action clauses, or CACs, to impose the restructuring deal on all bondholders as the number of voluntary agreements look set to fall short of the required amount.
Credit rating agencies have warned they will declare Athens to be in default if the CACs are triggered which would be a dramatic culmination to a three-year rollercoaster ride for Athens, the eurozone and global markets.
…[Italian Prime Minister Mario] Monti’s joint letter with twelve EU states last week calling for an end to self-defeating contraction marks a key moment in this crisis. If Francois Hollande is elected French president in May, the shift in Europe’s balance of power will be complete. Germany will lose its stifling grip on EU policy machinery. The EMU bloc will start to tilt towards reflation at long last.
Whether it can come soon enough to avert a social explosion across Europe’s arc of depression remains to be seen. Nor can such stimulus overcome the fundamental flaws of EMU since Germany is at an entirely place in the deform structure, with unemployment at 20-year lows of 5.5pc.
What is needed to save the South must endanger the North. Germany would overheat, pushing its inflation to 4pc or 5pc until Bild Zeitung erupts in Teutonic fury. It is impossible to reconcile the conflicting imperatives.
European leaders have approved their latest aid package for Greece, raising hopes that the worst phase of the sovereign debt crisis is over and a persistent source of stress on global markets has been removed.
But Greece’s 130 billion euro ($172 billion) bailout highlights the weaknesses in Europe’s response to the crisis, some analysts say. The worry is that these problems could flare up and undermine recovery efforts in countries like Italy, Spain, Ireland and Portugal.
“I don’t want to be a Cassandra, but the idea that it’s over is an illusion,” said Kenneth S. Rogoff, a professor of economics at Harvard University and co-author of “This Time Is Different: Eight Centuries of Financial Folly.” “I am amazed by the short-term psychology in the market.”
The mood is growing surly in the south of Europe as austerity measures take hold. With unemployment at 20 percent in some countries ”“ and youth unemployment as high as 50 percent ”“ warnings are growing sharper about a troubling rise of populist feeling….
Chancellor Angela Merkel’s Berlin republic is a European Germany, in the rich, positive sense in which the great novelist had come to use the term. It is free, civilized, democratic, law-bound, socially and environmentally conscious.
It’s far from perfect, obviously, but as good as any other big country in Europe ”“ and the best Germany we’ve ever had.
Yet because of the crisis of the euro zone this European Germany finds itself, unwillingly, at the centre of a German Europe. No one can seriously doubt that Germany is calling the shots in the euro zone. The reason there is a fiscal compact treaty agreed by 25 European Union member states is that Berlin wanted it. Desperate, impoverished Greeks are being told “do their homework” by Germans. More extraordinary still, the German Chancellor is now telling French voters who to vote for in their own presidential election, through a series of campaign appearances with President Nicolas Sarkozy. Everyone says Europe is being led by “Merkozy” but the reality is more like “Merkelzy.”
It wasn’t supposed to be like this. After six decades of peace, Europe should be basking in a golden age of prosperity. Instead its young are being ravaged by unemployment, with a record 5.6 million under-25s out of work.
Just over a million of the young unemployed are in Britain, the worst level in the country since figures began to be collected by Eurostat, the EU statistics agency, in 1983.
Bleak as Britain’s young jobless rate of 22.3 per cent is, the picture is far worse in eurozone countries enforcing deep austerity measures. As Spain’s jobless count broke the 5 million barrier yesterday, unemployment for those aged 16 to 24 was put at 51.4 per cent, meaning that for the first time in a modern European country a majority of the young are out of work.
In Greece the young jobless figure is 46.6 per cent, and in Portugal 30.7 per cent, according to Eurostat.
Read it all (requires subscription).
Rating agency Standard & Poor’s cut its credit rating of the European Financial Stability Facility, the euro zone’s rescue fund, by one notch to AA+ on Monday, three days after it cut the ratings of France and Austria by the same margin….
Standard & Poor’s downgraded the credit ratings of France, Italy and seven other European countries on Friday, a move that may have more symbolic than fundamental financial impact but served as a reminder that Europe’s economic woes were far from over.
Another memory jog came Friday from Greece, the original source of Europe’s debt troubles. Talks hit a snag between the new Greek government and the banks and other private investors that Athens hopes will agree to take losses on their debt so that Greece can avoid a default.
Together, those developments underscore that even as Europe’s debt turmoil enters its third year, no clear solutions are yet in sight ”” despite recent signs that a new lending program by the European Central Bank might be easing financial market pressures.
Investors in Europe are so worried about the euro crisis and so desperate to find a safe haven for their cash that they decided to forego an interest rate, and even paid a premium, for the privilege of lending Germany money on Monday.
The auction of six-month German government bills on Monday produced a negative interest rate. Even the Federal Finance Agency, which manages Germany’s debt, was astonished. “That has never happened before,” said a spokesman.
Organised crime has tightened its grip on the Italian economy during the economic crisis, making the Mafia the country’s biggest “bank” and squeezing the life out of thousands of small firms, according to a report on Tuesday.
Extortionate lending by criminal groups had become a “national emergency”, said the report by anti-crime group SOS Impresa.
As the political leaders of Europe come together to save the euro and European Union itself, I believe the time has come for religious leaders to do likewise.
The task ahead of us is not between Jews and Catholics, or even Jews and Christians, but between Jews and Christians on the one hand and the increasingly, even aggressively secularising forces at work in Europe today on the other, challenging and even ridiculing our faith.
When a civilisation loses its faith, it loses its future. When it recovers its faith, it recovers its future. For the sake of our children, and their children not yet born, we ”” Jews and Christians, side by side ”” must renew our faith and its prophetic voice. We must help Europe to recover its soul.
The idea of religious leaders saving the euro and the EU sounds absurd. What has religion to do with economics, or spirituality with financial institutions? The answer is that the market economy has religious roots. It emerged in a Europe saturated with Judeo-Christian values. In the Hebrew Bible, for instance, material prosperity is a divine blessing. Poverty crushes the human spirit as well as the body, and its alleviation is a sacred task.
One wishes that financial investors were made of the same stuff as German Chancellor Angela Merkel. With virtually the entire world convinced that the euro zone has not done enough to save the common currency, Merkel remains stoic in the face of demands to erect a gigantic firewall. On Thursday, she ruled out increasing the size of the permanent euro backstop fund, the European Stability Mechanism, beyond the currently planned €500 billion ($648.5 billion).
“The German government has always made it clear that the European debt crisis is not to be solved with a single blow,” she told German parliamentarians one day earlier. She said that overcoming the debt crisis would take years and made a plea for patience and endurance.
It would appear, however, that not many are listening. This week has seen several indications that financial markets are by no means impressed with the results of last week’s European Union summit….
The world’s financial system showed new signs of strain on Wednesday as banks and investors clamored for U.S. dollars and two European banks took emergency measures to address the deepening crisis.
Stresses rippled through debt and stock markets despite measures taken by European leaders last week to help restore investor confidence. Reflecting the tension, rates that banks charge each other for short-term borrowing in dollars continued to climb, hitting their highest level since July 2009. Long-term Italian government bond yields jumped back above 7%, a level that would crimp Italy’s ability to borrow in the future. Amid the rush for dollars, the euro dropped below $1.30 for the first time since January….
One of the German Social Democrat opposition leaders, Frank-Walter Steinmeier, also told the Bundestag that the summit had been a failure. “The fiscal pact is only an illusory giant ”” from far away it looks very big but if you come close, the breakthrough is really very small,” he said. “We used to have a debt crisis but after the summit we added a veritable constitutional crisis. What we have now is more instability and a further complicated structure in Europe.”Adding to signs of the economic damage, the respected Ifo Institute cut its forecast for German growth in 2012 by half to 0.4 per cent and warned Europe’s biggest economy could slide into recession if the debt turmoil is not quelled.
In theory the incipient rescue plan is supported by 26 European nations, with Britain the only exception. But other countries outside the eurozone have also cast doubts, saying they do not yet know if they can fully sign up. Earlier this week Petr Necas, the Prime Minister of the Czech Republic, said that the deal was “not much more than a blank sheet of paper”.
Michael Noonan, Ireland’s Finance Minister, said on a visit to London yesterday that Ireland may need to hold a referendum on the EU treaty, pointing to barriers within the euro area itself.
Read it all (requires subscription).
It would be Europe’s worst nightmare: after weeks of rumors, the Greek prime minister announces late on a Saturday night that the country will abandon the euro currency and return to the drachma.
Instead of business as usual on Monday morning, lines of angry Greeks form at the shuttered doors of the country’s banks, trying to get at their frozen deposits. The drachma’s value plummets more than 60 percent against the euro, and prices soar at the few shops willing to open.
Soon, the country’s international credit lines are cut after Greece, as part of the prime minister’s move, defaults on its debt.
As the country descends into chaos, the military seizes control of the government.
This scary chain of events might never come to pass. But the danger that Greece or some other deeply damaged country in the euro zone could leave the single-currency union can no longer be ruled out.
We Jjouranlists are probably too bleary-eyed after a sleepless night to understand the full significance of what has just happened in Brussels. What is clear is that after a long, hard and rancorous negotiation, at about 5am this… [past Friday] the European Union split in a fundamental way.
In an effort to stabilise the euro zone, France, Germany and 21 other countries have decided to draft their own treaty to impose more central control over national budgets. Britain and three others have decided to stay out. In the coming weeks, Britain may find itself even more isolated. Sweden, the Czech Republic and Hungary want time to consult their parliaments and political parties before deciding on whether to join the new union-within-the-union.
So two decades to the day after the Maastricht Treaty was concluded, launching the process towards the single European currency, the EU’s tectonic plates have slipped momentously along same the fault line that has always divided it””the English Channel.
The positive reactions appeared to be driven by relief that leaders had reached an agreement at all, rather than enthusiasm for the deal itself. If recent history is any guide, the glow could fade fast as investors focus on the details, or on a continued lack of clarity over what role the European Central Bank will play.
“The summit was the first step toward fiscal integration, which is a problem we need to solve, but it will be a long, drawn-out process,” said Mohit Kumar, head of European rates strategy at Deutsche Bank in London….
European leaders say 26 out of 27 EU member states have backed a tax and budget pact to tackle the eurozone debt crisis.
Only the UK has said it will not join. Prime Minister David Cameron said he had to protect key British interests, including its financial markets.
The 17 countries that use the euro have all agreed to the deal.
The European Union suffered the most damaging split in its 54 year history after David Cameron used the British veto to block eurozone treaty change after France and Germany opposed “safeguards” to protect Britain’s economy….
The Prime Minister insisted that he had been prepared to support treaty change among all 27 of the EU’s members to allow the 17-strong eurozone to take measures to tackle its debt crisis and to enforce tough new fiscal rules for the single currency.
But after 11 hours of bad-tempered talks, Mr Cameron said that he had blocked the changes because France and Germany and refused to agree to a “protocol” giving the City of London protection from a wave of EU financial service regulations related to the eurozone crisis.
Economic growth in much of Asia remains robust, the Asian Development Bank said. But trade and financial activity have already started to be eroded by the turmoil in Europe, and they risk being undermined further if the European debt crisis evolves into a full-blown financial and economic crisis like the one spurred by the collapse of Lehman Brothers in September 2008.
“Things are changing very rapidly ”” not just weekly and daily, but hourly,” Iwan J. Azis, head of the development bank’s office of regional economic integration, said at a news conference in Hong Kong, as he presented the bank’s latest update on emerging East Asian nations.