French and German banks have lent nearly $1 trillion to the most troubled European countries and are more exposed to the debt crisis than the banks of any other countries, according to a new report that is likely to add pressure on institutions to detail their holdings.

French banks had lent $493 billion to Spain, Greece, Portugal and Ireland by the end of 2009 while German banks had lent $465 billion, according to the report by the Bank for International Settlements, an institution based in Basel, Switzerland, that acts as a clearing house for the world’s central banks.

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From here:

The Dow spent much of Wednesday’s session in the black but turned lower in the final hour after Chancellor Angela Merkel defended Germany’s EUR80 billion austerity package for the next four years, saying that the time to withdraw stimulus has come and lessons from the debt crisis must be learned.

“If she’s basically saying that it’s time to withdraw stimulus, what’s that going to do to Europe’s strongest economy?” asked Michael Shea, managing partner at Direct Access Partners. “What it’s doing is just creating more and more uncertainty.”

Germany is shrinking ”” fast. New figures released on May 17 show the birth rate in Europe’s biggest economy has plummeted to a historic low, dropping to a level not seen since 1946. As demographers warn of the consequences of not making enough babies to replace and support an aging population, the latest figures have triggered a bout of national soul-searching and cast a harsh light on Chancellor Angela Merkel’s family policies.

According to a preliminary analysis by the Federal Statistics Office, 651,000 children were born in Germany in 2009 ”” 30,000 fewer than in 2008, a dip of 3.6%. In 1990, German mothers were having on average 1.5 children each; today that average is down to 1.38 children per mother. With a shortfall of 190,000 between the number of people who died and the number of children who were born, Germany’s birth rate is well below the level required to keep the population stable.

“The German birth rate has remained remarkably flat over the past few years while it has increased in other low-fertility countries, like Italy and the Czech Republic,” Joshua Goldstein, executive director of the Max Planck Institute for Demographic Research, tells TIME. “Women are continuing to postpone motherhood to an older age and this process of postponement is temporarily lowering the birth rate.” According to Goldstein’s research, Germany has the longest history of low fertility in Europe.

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If the trouble starts — and it remains an “if” — the trigger may well be obscure to the concerns of most Americans: a missed budget projection by the Spanish government, the failure of Greece to hit a deficit-reduction target, a drop in Ireland’s economic output.

But the knife-edge psychology currently governing global markets has put the future of the U.S. economic recovery in the hands of politicians in an assortment of European capitals. If one or more fail to make the expected progress on cutting budgets, restructuring economies or boosting growth, it could drain confidence in a broad and unsettling way. Credit markets worldwide could lock up and throw the global economy back into recession.

For the average American, that seemingly distant sequence of events could translate into another hit on the 401(k) plan, a lost factory shift if exports to Europe decline and another shock to the banking system that might make it harder to borrow.

“If what happened in Greece were to happen in a large country, it could fundamentally mark our times,” Angelos Pangratis, head of the European Union delegation to the United States, said Friday after a panel discussion on the crisis in Greece sponsored by the Greater Washington Board of Trade.

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Across Western Europe, the “lifestyle superpower,” the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II.

Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism.

Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. They have also translated higher taxes into a cradle-to-grave safety net. “The Europe that protects” is a slogan of the European Union.

But all over Europe governments with big budgets, falling tax revenues and aging populations are experiencing rising deficits, with more bad news ahead.

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Germany moved Friday to shore up the euro and stabilize heavily indebted European nations, approving the country’s share of a nearly $1 trillion euro-region bailout.

The lower house of the German parliament voted 319 to 73 in favor of the package, which was put together two weeks ago. There were 195 abstentions. The upper house, the Bundesrat, was scheduled to pass the measure later Friday.

Under the plan, Germany is to lend as much as $184 billion to debt-ridden states in the euro zone to backstop the European currency and protect the nations from default. The package follows an earlier rescue for Greece.

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Europe’s leaders scrambled to restore unity in the face of the sovereign debt crisis after Germany dismayed allies with a unilateral ban on naked short selling.

The ban, introduced with no warning to other European nations, knocked global stock markets and sent the euro tumbling to fresh four-year lows against the dollar. An unrepentant Angela Merkel, German chancellor, told parliament in Berlin on Wednesday that the eurozone crisis was the greatest test for the European Union since its creation.

“It is a question of survival,” she said. “The euro is in danger. If the euro fails, then Europe fails. If we succeed, Europe will be stronger.”

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Shocked European ministers are preparing for emergency talks to shore up the euro after markets fell in reaction to panic measures in Germany.

Angela Merkel stunned EU capitals by warning that the euro was in danger and triggered fears of a fresh financial meltdown by announcing a ban on risky trading practices by speculators. The German Chancellor’s actions opened up new cracks in the single currency, drawing sharp criticism from France and prompting Brussels to issue an appeal for unity.

Shares in London plunged by nearly 3 per cent, with similar falls in Paris, Berlin and Madrid. The euro plummeted to a new low against the dollar before making a slight recovery.

European finance ministers, who have just hammered out a massive rescue plan for Greece, will hear controversial calls from Germany at a meeting tomorrow for changes to the Lisbon treaty to give Brussels powers to co-ordinate national budgets.

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Hesham Shashaa looked twice at the display on his cellphone, staring at the number. “It’s either a person who needs help or someone who wants to kill me,” he said.

Mr. Shashaa, an imam at the Darul Quran mosque in Munich, follows the strictest form of Islam, Salafi. But the people who want to kill him are Muslims.

“They use the religion for their personal aims and declare war on Jews and Christians, but I want people to follow what Islam really says,” said Mr. Shashaa, who with his beard and traditional clothes has sometimes been likened to Osama bin Laden. But his philosophy is quite different.

A growing number of imams in Europe and the Middle East have denounced suicide missions and terrorist acts. Many of these imams, however, still view Al Qaeda, the Taliban or Hamas as legitimate resistance movements, while Mr. Shashaa openly declares that they are violating the tenets of Islam.

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SPIEGEL: So, what was in danger? Just the banks? The euro? The European Union?

Trichet: We are now experiencing severe tensions, which are coming after the events of 2007-2008. At that time, private institutions and markets were about to collapse completely. That triggered a very bold and comprehensive financial support by governments. And now we see the signature of some governments put into question. This is a problem for almost all industrialized countries. In the G-7, the major economies have a yearly deficit of around 10 percent of gross domesitc product (GDP). In the euro area as a whole it averages 7 percent of GDP. In this situation with extremely elevated deficits across the globe, the markets have singled out a weak link: Greece. Also taking into account the fact that its statistics were incorrect at one time, market pressure was concentrated there and a drastic adjustment program was necessary.

SPIEGEL: Apparently it was not only Greece that came under attack. Portugal was next …

Trichet: In the market, there is always a danger of contagion — like the contagion we saw among the private institutions in 2008. And it can occur quickly. Sometimes it is a question of half days. This is an issue for the industrialized world as a whole….

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“We have not relented on our principles,” Mr. [Jean-Claude] Trichet told Der Spiegel, the German newsmagazine, according to a transcript on the bank’s Web site. “Price stability is our primary mandate and compass.”

And in an interview broadcast on Sunday, the U.S. Treasury secretary, Timothy F. Geithner, signaled his confidence that Europe would resolve its debt crisis and that the American economy would withstand its impact. “Europe has the capacity to manage through this,” Mr. Geithner told Bloomberg Television. “And I think they will.”

As investors absorb the details ”” and the potential weaknesses ”” of the $1 trillion European rescue plan, Mr. Geithner seemed to be trying to draw a sharp, if implicit, contrast to remarks last week from another senior economic adviser to President Barack Obama, Paul A. Volcker. Mr. Volcker, a former Federal Reserve chairman, startled some investors when he spoke of a possible “disintegration” of the euro zone ”” a striking shift from his expressions of confidence of only two months earlier.

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Gisela and Susi, thirtysomething civil service secretaries, were shivering over their sausages in what the tabloids labelled the “most miserable May of the millennium” and planning their summer holidays. “I know where I’m not going,” one of them said. “The hotels, service and food aren’t as good as Turkey but the prices are as high as Italy!”

As Berliners bravely sat on the banks of the River Spree in unseasonably cold weather for the Ascension Day holiday that traditionally marks the start of summer, they had no doubt that the cold wind was blowing from the sunny south: Greece in particular.

The multi-billion-euro payout for Greece, followed by an even more expensive rescue package for the threatened single currency, has created the greatest political climate change in a generation.

Suddenly Germans are asking questions about the European project that has been the bedrock of their politics for 60 years, leaving Angela Merkel, the chancellor, under fire from the electorate, the opposition and her own party….

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Now governments are struggling to cope with the aftermath. But, in insisting that there will be no defaults, they are protecting the financial sector from its stupidity. The people of indebted countries are expected to pay, instead. Is this going to prove an acceptable bargain, in the absence of a return to growth in stricken countries? Hardly.

So where do we go from here? We must start by recognising that all we have done is buy a little time. In the eurozone’s first real crisis, governments have been driven to desperate attempts to prevent defaults, as finance has dried up. Now they confront big choices.

The first and most fundamental is whether to go towards greater integration or towards disintegration. The answer has to be the former. Of course, it is possible to imagine a return to national currencies. But this would cause the financial system to implode, since the relations between assets and liabilities now in euros would become so uncertain. There would be massive capital flight into the banks of those countries deemed safe.

The second is how to manage divergence. The eurozone cannot rely on markets alone. It will have to police divergence in upswings and cushion adjustment in downswings.

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Then for the first time I spoke. I said I would have no communication with either of the Opposition parties until I had the King’s Commission to form a Government. On this the momentous conversation came to an end, and we reverted to our ordinary easy and familiar manners of men who had worked for years together and whose lives in and out of office had been spent in the friendliness of British politics. I then went back to the Admiralty, where, as may well he imagined, much awaited me.

The Dutch Ministers were in my room. Haggard and worn, with horror in their eyes, they had just flown over from Amsterdam. Their country had been attacked without the slightest pretext or warning. The avalanche of fire and steel had rolled across the frontiers, and when resistance broke out and the Dutch frontier guards fired an overwhelming onslaught was made from the air. The whole country was in a state of wild confusion.

Read it all from Brad DeLong’s blog.

Yesterday night’s important news out of Europe points to renewed efforts to rescue Greece and safeguard the Euro. The news will undoubtedly be accompanied by additional announcements out of Brussels and Berlin, as well as Washington DC. In the process, the stakes are getting even bigger”¦for Greece, Europe and the global economy.

As the announcements multiply, it is even more important to be clear about the key question. This is best summarized by a simple, and disturbing image, that a friend alerted me to:

With Greece (as well as Portugal and some other countries) now visibly drowning in a sea of debt, the question is whether the rescuer (EU/IMF) can pull off the rescue or, instead, get pulled down with all parties drowning.

So far, the attempts at rescue-including last Sunday’s dramatic EUR 110 billion announcement-have have been incomplete with respect to both design and implementation. They were thus viewed as insufficient and not credible by analysts and markets. As a result, the Greek crisis morphed in the following days into something much more sinister for Europe and the global economy.

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European Union officials were working out the details of a financial support mechanism on Saturday to prevent Greece’s debt turmoil spreading to Portugal and Spain, ready for approval by EU finance ministers on Sunday.

The leaders of the 16 countries that use the single currency said on Friday after talks with the European Central Bank and the executive European Commission that they would take whatever steps were needed to protect the stability of the euro area.

Both Italian Prime Minister Silvio Berlusconi and French President Nicolas Sarkozy cancelled trips to Moscow to mark the anniversary of the end of world war two in order to continue consultations over the crisis, though German Chancellor Angela Merkel said she would still go.

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Pope Benedict today accepted the resignation of a German bishop who has been accused of sexually abusing children, the latest in a string of Roman Catholic prelates forced to resign over an abuse scandal.

A Vatican statement said the pope agreed Bishop Walter Mixa of Augsburg in Bavaria should step down. He became the first bishop to quit in the pontiff’s native Germany over the abuse scandal that has rocked the Church in several European countries and the United States.

In recent weeks, a Belgian bishop resigned after admitting he had sexually abused a boy and three Irish bishops quit over their handling of sexual abuse cases.

German prosecutors and church officials said yesterday authorities were investigating accusations of sexual abuse by Mixa, who had already offered to resign after being accused of hitting children.

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Army Lt. Bill Hamilton’s V-E Day memory centers around a castle and a river.

Hamilton, 86, of West Ashley was in Salzburg, Austria, that week in 1945 and faced a last firefight against Nazi SS troops. German army soldiers helped the Americans because they disliked the SS so much, he said.

Hamilton, who was part of The Citadel’s Class of 1944, and his soldiers had to spend the night in a castle until it was safe to head back to the American lines, he remembered.

On May 8, ranking officers told Hamilton to be on the alert for the announcement that unconditional surrender was coming. When word came that peace had arrived, his men ran to a nearby river and tossed in all their hand-grenades after first pulling the trigger pins.

“All the fish came up,” he said.

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The Greek debt crisis is now morphing into something much broader. No wonder the European Union and the International Monetary Fund are scrambling to regain control of the rapidly deteriorating situation. There is talk of a bigger bail-out package for Greece. The heads of the European Central Bank and IMF have made the trip to Germany that is reminiscent of the Ben Bernanke-Hank Paulson trip to Congress in the midst of the US financial crisis.

Markets are now catching up to the reality of over-burdened public finances in the aftermath of the global financial crisis. These developments are of particular concern to countries with elevated debt levels and challenging maturity profiles for this debt. Indeed, absent some dramatic change in sentiment, they will need to worry not only about their ability to mobilise new funding from the private sector at reasonable cost, but also about keeping their existing creditors on board. As a result, credit downgrades will multiply. And once a package is approved for Greece, there will be questions as to whether similar packages can be secured for other vulnerable countries in the European Union….

The bottom line is simple yet consequential: the Greek debt crisis has morphed into something that is potentially more sinister for Europe and the global economy. What started out as a public finance issue is quickly turning into a banking problem too; and, what started out as a Greek issue has become a full-blown crisis for Europe.

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Where is the apology for the abuses in Germany? After all, even as the number of Irish abuse cases mounts, the depth and history of abuse in Germany is just now becoming clear ”” more than 250 cases are known, with more appearing each day. At least 14 priests are under investigation by the authorities.

Though Germany is a secular country and Catholics make up only a third of the population, the scandal has engendered a national debate ”” about religious education, about single-sex institutions and, above all, about the role of celibacy in the Catholic Church.

And while the scandal is not unique to Germany, the current wave of abuse revelations sweeping Europe feels particularly German, because the pope is German: Benedict was once Joseph Ratzinger, the archbishop of Munich and Freising and long a leading voice of conservative German Catholics.

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The priest at the center of a German sex-abuse scandal that has embroiled Pope Benedict XVI was suspended Monday, more than 30 years after the church first heard allegations that he had molested children.

The priest, Peter Hullermann, was suspended after church officials acknowledged in a statement on Friday that he had continued working with children even after being forbidden in 2008. His supervisor, Prelate Josef Obermaier, resigned, according to the Archdiocese of Munich and Freising.

In 1980, Benedict, then archbishop there, approved Father Hullermann’s move to Munich after he was accused of sexually abusing boys in the Diocese of Essen, though on Friday a deputy took full responsibility for allowing the priest to return to full pastoral duties shortly thereafter. Father Hullermann was convicted of sexually abusing children in the Bavarian town of Grafing in June 1986 by a district court in nearby Ebersberg, church officials said Friday.

Hundreds of victims have come forward in recent months in Germany with accounts of sexual and other physical abuse from decades past. But no case has captured the attention of the nation like that of Father Hullermann, because of the involvement of the future pope, then Archbishop Joseph Ratzinger, but also because of the impunity that allowed a child molester to continue to work with altar boys and girls for decades after his conviction.

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The priest at the center of a German sex-abuse scandal that has embroiled Pope Benedict XVI was suspended Monday, more than 30 years after the church first heard allegations that he had molested children.

The priest, Peter Hullermann, was suspended after church officials acknowledged in a statement on Friday that he had continued working with children even after being forbidden in 2008. His supervisor, Prelate Josef Obermaier, resigned, according to the Archdiocese of Munich and Freising.

In 1980, Benedict, then archbishop there, approved Father Hullermann’s move to Munich after he was accused of sexually abusing boys in the Diocese of Essen, though on Friday a deputy took full responsibility for allowing the priest to return to full pastoral duties shortly thereafter. Father Hullermann was convicted of sexually abusing children in the Bavarian town of Grafing in June 1986 by a district court in nearby Ebersberg, church officials said Friday.

Hundreds of victims have come forward in recent months in Germany with accounts of sexual and other physical abuse from decades past. But no case has captured the attention of the nation like that of Father Hullermann, because of the involvement of the future pope, then Archbishop Joseph Ratzinger, but also because of the impunity that allowed a child molester to continue to work with altar boys and girls for decades after his conviction.

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The United States, Germany and other major economies could see their top-notch credit rating come under pressure if the recovery in the global economy stalls, Moody’s Investors Service warned Monday in a report.

The ratings of the Aaa governments ”” which also include Britain, France, Spain and “the less fiscally challenged Denmark, Norway, Finland and Sweden” ”” “are currently well positioned despite their stretched finances,” Moody’s said in its quarter Sovereign Monitor report.

But the agency noted that “the recovery that has taken hold across the global economy remains fragile in several of the large advanced economies, most of which have also implemented the most aggressively expansionary fiscal and monetary policies.”

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The United States, Germany and other major economies could see their top-notch credit rating come under pressure if the recovery in the global economy stalls, Moody’s Investors Service warned Monday in a report.

The ratings of the Aaa governments ”” which also include Britain, France, Spain and “the less fiscally challenged Denmark, Norway, Finland and Sweden” ”” “are currently well positioned despite their stretched finances,” Moody’s said in its quarter Sovereign Monitor report.

But the agency noted that “the recovery that has taken hold across the global economy remains fragile in several of the large advanced economies, most of which have also implemented the most aggressively expansionary fiscal and monetary policies.”

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Eslewhere in the world, Europe is widely regarded as a continent whose economy is rigid and sclerotic, whose people are work-shy and welfare-dependent, and whose industrial base is antiquated and declining””the broken cogs and levers that condemn the old world to a gloomy future. As with most clichés, there is some truth in it. Yet as our special report in this week’s issue shows, the achievements of Germany, Europe’s biggest economy, tell a rather different story.

A decade ago Germany was the sick man of Europe, plagued by slow growth and high unemployment, with big manufacturers moving out in a desperate search for lower costs. Now, despite the recession, unemployment is lower than it was five years ago. Although Germany recently ceded its place as the world’s biggest exporter to China, its exporting prowess remains undimmed. As a share of GDP, its current-account surplus this year will be bigger than China’s.

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Eslewhere in the world, Europe is widely regarded as a continent whose economy is rigid and sclerotic, whose people are work-shy and welfare-dependent, and whose industrial base is antiquated and declining””the broken cogs and levers that condemn the old world to a gloomy future. As with most clichés, there is some truth in it. Yet as our special report in this week’s issue shows, the achievements of Germany, Europe’s biggest economy, tell a rather different story.

A decade ago Germany was the sick man of Europe, plagued by slow growth and high unemployment, with big manufacturers moving out in a desperate search for lower costs. Now, despite the recession, unemployment is lower than it was five years ago. Although Germany recently ceded its place as the world’s biggest exporter to China, its exporting prowess remains undimmed. As a share of GDP, its current-account surplus this year will be bigger than China’s.

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Fr. Federico Lombardi, director of the Holy See’s Press Office, released a statement on Saturday morning in which he made three “observations” regarding sexual abuse by people and in institutions of the Catholic Church. He also addressed dismissed as unfounded attempts to link the Pope to a decision to transfer a priest found to have committed sexual abuse when Benedict XVI was Archbishop of Munich.

The first of the three “observations” made by Fr. Lombardi was to point out that the “line taken” by the German Bishops’ Conference has been confirmed as the correct path to confront the problem in its different aspects.

Fr. Lombardi included some elements of the statement made by Archbishop Robert Zollitsch at a Friday press conference following his audience with the Pope. The Vatican spokesman highlighted the approach established by the German bishops to respond to the possible abuses: “recognizing the truth and helping the victims, reinforcing the preventions and collaborating constructively with the authorities – including those of the state judiciaries – for the common good of society.”

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Fr. Federico Lombardi, director of the Holy See’s Press Office, released a statement on Saturday morning in which he made three “observations” regarding sexual abuse by people and in institutions of the Catholic Church. He also addressed dismissed as unfounded attempts to link the Pope to a decision to transfer a priest found to have committed sexual abuse when Benedict XVI was Archbishop of Munich.

The first of the three “observations” made by Fr. Lombardi was to point out that the “line taken” by the German Bishops’ Conference has been confirmed as the correct path to confront the problem in its different aspects.

Fr. Lombardi included some elements of the statement made by Archbishop Robert Zollitsch at a Friday press conference following his audience with the Pope. The Vatican spokesman highlighted the approach established by the German bishops to respond to the possible abuses: “recognizing the truth and helping the victims, reinforcing the preventions and collaborating constructively with the authorities – including those of the state judiciaries – for the common good of society.”

Read it all.

A widening child sexual abuse inquiry in Europe has landed at the doorstep of Pope Benedict XVI, as a senior church official acknowledged Friday that a German archdiocese made “serious mistakes” in handling an abuse case while the pope served as its archbishop.

The archdiocese said that a priest accused of molesting boys was given therapy in 1980 and later allowed to resume pastoral duties, before committing further abuses and being prosecuted. Pope Benedict, who at the time headed the Archdiocese of Munich and Freising, approved the priest’s transfer for therapy. A subordinate took full responsibility for allowing the priest to later resume pastoral work, the archdiocese said in a statement.

The Vatican spokesman, the Rev. Federico Lombardi, said he had no comment beyond the statement by the Archdiocese of Munich and Freising, which he said showed the “nonresponsibility” of the pope in the matter.

The expanding abuse inquiry had come ever closer to Benedict as new accusations in Germany surfaced almost daily since the first reports in January. On Friday the pope met with the chief bishop of Germany, Archbishop Robert Zollitsch, the head of the German Bishops Conference, to discuss the church investigations and media reports.

Read it all.

A widening child sexual abuse inquiry in Europe has landed at the doorstep of Pope Benedict XVI, as a senior church official acknowledged Friday that a German archdiocese made “serious mistakes” in handling an abuse case while the pope served as its archbishop.

The archdiocese said that a priest accused of molesting boys was given therapy in 1980 and later allowed to resume pastoral duties, before committing further abuses and being prosecuted. Pope Benedict, who at the time headed the Archdiocese of Munich and Freising, approved the priest’s transfer for therapy. A subordinate took full responsibility for allowing the priest to later resume pastoral work, the archdiocese said in a statement.

The Vatican spokesman, the Rev. Federico Lombardi, said he had no comment beyond the statement by the Archdiocese of Munich and Freising, which he said showed the “nonresponsibility” of the pope in the matter.

The expanding abuse inquiry had come ever closer to Benedict as new accusations in Germany surfaced almost daily since the first reports in January. On Friday the pope met with the chief bishop of Germany, Archbishop Robert Zollitsch, the head of the German Bishops Conference, to discuss the church investigations and media reports.

Read it all.