Left and Right should join forces against the great euro takeoverAs the EU crisis nears its moment of truth we need democrats – not technocrats – in charge. Activists have set up a fireplace near the Euro sculpture in front of the European Central Bank in Frankfurt Photo: AP 8:09PM GMT 11 Nov 2011 |
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'The moment of truth is approaching,” said David Cameron on Thursday. But what is the truth? In the view of those who run Europe, the truth is that its single currency must be saved. In very ancient Greece, Homer tells us, the giants tried to scale Heaven by piling Mount Ossa on top of Mount Olympus, and then adding “wooded Pelion”, another mountain in those parts, on top of that. They failed, of course, and “piling Pelion on Ossa” became a by-word for reinforcing failure. In very modern Greece (two days ago), a new prime minister was chosen. Lucas Papademos is not an elected politician. He is the former governor of the Bank of Greece, and it was part of his job a decade ago to persuade the European Union that his country had met the budget deficit criteria which would permit entry to the euro. It hadn’t, but he said it had. Greece joined. Now, partly because of this original fiction, Greece is bust. Yet the answer, strongly approved by the euro-giants, who were disgusted by the earlier suggestion of a referendum, is to pile Papademos on Papandreou. In modern Rome, it is proposed that Mario Monti succeed Silvio Berlusconi as prime minister of Italy. Mr Monti is sometimes described as a politician, but, again, he does not sit in his country’s parliament: on Thursday, the President of Italy suddenly made him a senator-for-life. He has, however, spent nine years as a European Commissioner. His postal address is Rue de la Charité, Brussels. The euro-giants love him too. These changes are welcomed by the powerful because they mean rule by “technocrats”. Let’s call in those clever chaps who have already proved they know how to pile Pelion on Ossa and get them to pile up several more mountains, summit upon G20 summit! Then we can reach Heaven at last! There is, one must admit, a weird logic in this. One reason the eurozone is tottering is that markets know that its members (by which they mean Germany) could produce the mere two trillion euros required to calm things down, but are refusing to do so. The markets are goading them to see if they are serious. They, naturally, would like to prove that they are. But what I want to shout out, like the man in the hall in an old-fashioned election meeting, is “What about the workers?” So long as the economies of Europe were on a fairly even keel, normal people did not pay much attention to the great plans to reorganise their continent. But now, as the European Commission itself admitted this week, these plans have stopped growth. They are beginning to do so not only in the eurozone, not only in near-neighbours such as Britain, but right across the world. While the trouble persists, no one knows whether to invest in production and trade. The “safe havens” of gilts outside the storm become bubbles, and therefore cease to be so safe. America and China are both making their displeasure felt. I caught Mr Papademos saying on television that it was only by remaining in the euro that Greece could return to “financial prosperity”. True, you cannot have a sound economy without sound money. But what is emerging in this crisis, as is always characteristic of depressions, is that an obsession with the strictly financial comes into conflict with the broader economic good. Possibly, though I doubt it, Greece and other “Club Med” countries can find ways of staying in the euro. But they will do so – are already doing so – at a punitive cost to their citizens. Every country needs its central banker, but are they and their like really the men for the hour of national salvation? Aren’t they the representatives of the class that has failed? You often hear Greens complaining about “our obsession with economic growth”. Now that citizens are beginning to lose their wage rates, their jobs, their houses, their pensions, their futures, we shall all be reminded of why that “obsession” makes sense. However badly a country such as Greece has run itself (it has, it has), however much Italy needs “structural reform” (it does, it does), however much every country south of the Rhine may be reprehensibly late-rising, unshaven, garlic-reeking and generally un‑Germanic, they cannot correct their own errors if their debt compounds and their currency is overvalued. The one size that is supposed to fit all is, in reality, the one size that fits Germany. Our leaders keep saying how vital it is to keep the euro afloat. There can be no doubt that its sudden collapse would have terrifying consequences. But the remedy of throwing more and more troops into the valley of the shadow of financial death may be no remedy at all. The most diligent eurozone workers – and British workers, too, if we are not careful – will end up like poor Boxer in Animal Farm, nobly making every sacrifice for something that cannot be achieved. There is surely a case here for common cause between Left and Right. Historically, the Left has gained its stature by standing up for the downtrodden. The European Union, and even more the eurozone, is the classic bankers’ ramp against which the Left always warned. Yet, probably because it hated Mrs Thatcher so much, the Left switched to supporting the euro, and thus betrayed the underdog. The Right originally supported European integration because it would undermine trade-unionised siege economies and fend off Communism. But the euro turns out to be opposed to the competition which is the lifeblood of free markets, and gives privileged status to an alliance of bureaucrats, politicians, bankers and central bankers which then protects itself with the “too big to fail” argument. That alliance now finds perfect expression in the Frankfurt Group. As an exceptionally brave central banker, Mervyn King, said in an interview with this paper earlier in the year: “The concept of 'too big to fail’ should have no place in a market economy.” The euro is very, very big, and very nearly failed. Yes, fiscal union is an answer, of a sort, to the problems the euro has now. But it is surely not the answer that believers in markets should prefer. Left and Right alike – Left and Right in their anti-establishment forms – should agree that this is not the time for technocrats and Frankfurters. I have a more original idea. How about a few democrats? The truth whose moment Mr Cameron sees approaching is that since Europe has to be rebuilt, the construction must be revalidated by its component nations and their citizens. When Mrs Thatcher fought against the Delors plan for a single currency more than 20 years ago, her arguments were right, but the tide of the times was against her. Her opponents, above all Helmut Kohl, had personal prestige, and appeared to represent the triumph of a new order to replace Soviet Communism and bury the ghosts of the Second World War. Most people therefore trusted them. Today, that trust is broken. “Credit” means belief, and belief has now collapsed financially, politically and morally. So, even in Britain, which is mercifully outside the currency, the old government line of “Trust us to sort this complicated problem out in the national interest” is a provocation not a reassurance. The national interest lies in devising a European settlement which our Government is positively eager to put to the British people in a referendum. If our Government sees this, the principles that should guide the coming, inevitable renegotiation will become clear. Telegraph German Chancellor Angela Merkel tells Greek PM Lucas Papademos that her country will 'stand by' AthensGerman Chancellor Angela Merkel told interim Greek Prime Minister Lucas Papademos in a telegram that Berlin would "stand by" Athens as it grapples with its crippling debt crisis. |
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"I wish you luck in your future work as prime minister," Ms Merkel wrote. "I look forward to working with you and assure you that Germany will stand by you and the Greek people in the struggle to contend with our shared challenges in Europe and the eurozone." After being sworn in, Mr Papademos said a sense of unity will assist him and his new interim government to achieve its goals. Former Prime Minister George Papandreou made great efforts to achieve reforms in a very difficult environment, Papademos said today in Athens. French President Nicolas Sarkozy also hailed Greece's swearing-in of Mr Papademos and said the country where the eurozone debt market crisis began two years ago could count on Paris's support. "I am delighted to see the creation, under your leadership, of a government of broad national unity that can ensure the full implementation of the accord of October 27 and the measures it calls for," Sarkozy said in a letter to the new prime minister. He was referring to an October agreement between eurozone leaders to provide further rescue help for Greece in return for further austerity measures in a country where cutbacks have triggered violent public protests. "At this crucial time, with so much at stake, I am sure you are determined to take all necessary measures to ensure Greece continues to fully play its role in a Europe that is united and loyal to its ideals," he said in the letter. Finance Minister Evangelos Venizelos kept his post in the incoming team, which includes a former EU commissioner and several far-right lawmakers, a first since 1974. Ex-EU environment commissioner Stavros Dimas takes over the foreign ministry under a power-sharing deal between the socialist Pasok party, the conservative New Democracy and the nationalist Laos party. Thirteen members of the outgoing socialist administration retained their posts, while the conservatives were also given the defence ministry, which will be run by former Athens mayor Dimitris Avramopoulos. The nationalists received the infrastructure ministry and three junior ministry positions. The new government's first job will be to persuade the European Union and International Monetary Fund to disburse an €8bn slice of aid from a 2010 bailout deal that is needed by December 15 before state coffers run dry. Then it must force through painful austerity measures exacted as the price for a second EU rescue package, which gives Athens €100bn in loans, the same amount in debt reduction and a further €30bn in guarantees. Also tasked with holding early elections as soon as the EU deal is ratified by parliament, the new administration can count on the support of 254 deputies in the 300-seat parliament. Meanwhile, Greece is relying on Iran for most of its oil as traders pull the plug on supplies and banks refuse to provide financing for fear that Athens will default on its debt. Traders said Greece has turned to Iran as the supplier of last resort despite rising pressure from Washington and Brussels to stifle trade as part of a campaign against Tehran's nuclear programme. The near paralysis of oil dealings with Greece, which has four refineries, shows how trade in Europe could stall due to a breakdown in trust caused by the euro zone debt crisis, which is threatening to spread to further countries.
Daniel Johnson is the editor of Standpoint (www.standpointmag.co.uk)
A new Europe must be built on the ruins of the old
Only a redrafted constitution will revive the EU: there could be no worse end to this saga than imposition of German 'discipline'
Simon Jenkins guardian.co.uk 10 November 2011
Illustration by Satoshi Kambayashi
This is the way the world ends, not with a bang but a cliche. Crisis spirals out of control and Armageddon moves to the brink of abyss. "Europe" is too big to fail yet too big to succeed. Each newscast is a crash course in economics, each headline an incitement to suicide. But since we are not at war and few understand what is going on, the rest cannot believe it. As if watching the fall of Icarus, they sense the gods are angry but return quietly to the plough.
This week the European backwash of the crash of 2008 moved way beyond high finance. Economics may have pushed politics to the wall, but in Greece, Italy and, more important, Germany, politics is hitting back, hard. Yelling, spitting and choking with frustration, it has had enough of economics, and has beaten it to the ground. Yesterday it claimed its first scalp, demanding a new ruler of Greece.
There is no point in European Union acolytes loftily opining that "it was a pity" Greece was admitted to the euro. It was more than a pity, it was a crime. There is no point in bewailing the reluctance of Germans to bail out Greeks or Latins, or let their bankers print billions of cash. There is no point in hectoring or dreaming. A 50-year fiction is over. As often before in history, a new Europe must be built on the ruins of the old, and we had better get used to it.
It is a massive irony that old Europe's last gasp should be to seek the very outcome it sought in the 1950s to avoid, German supremacy. The one thing on which I agree with my colleague, Timothy Garton Ash, on Comment is free yesterday, is that " if the eurozone is saved, it will be as a fiscal union on largely German terms".
Substitute the word political for fiscal, as honesty dictates, and we are back to the ghoulish first half of the 20th century. European union is always on someone's "terms", and they rarely have much to do with consent.
There is one difference today. Garton Ash may want "the kind of budget, debt and wage discipline [Germany] has practised with such impressive results over the last decade, and now seeks for the whole eurozone". It may be "precisely what Europe needs". But what Europe needs does not embrace the enforcement of what Germany would like to see.
We might have said the same of the British empire in its heyday, that British discipline was "what the peoples of India and Africa" needed. We could mow them down when they disagreed. Germany has no panzer divisions, nor does it desire to dominate Europe politically, and without that desire there is no means of enforcement. The implied German supremacism of the EU's last-ditchers, under the euphemism of "fiscal union", is archaic, elitist, dangerous and mercifully impossible.
The paradox is that this impossibility is to the credit of the postwar European movement itself. It has achieved what it set out to do, to liberate the nations of Europe from fear of German overlord-ship. This liberation has allowed France to walk proud, Britain to enjoy semi-detachment, Scandinavia to think for itself and middle Europe to breathe free. The EU lobby may have cobbled together institutions for a united states of Europe, but it was a fool's errand, and one that could only play into the hands of German revanchism.
The tragedy is that the chosen vehicle of European union should have been a common currency. This ostensibly innocent tool is a weapon of mass economic destruction. It has imposed its clammy grip on divergent national economies, forcing hundreds of thousands of workers and their families to flee the "overvalued" countries of east and south Europe to seek work in the north. Others were kept at home only by government jobs funded by reckless foreign indebtedness. The reason was not just the fixing of the value of the euro to the Deutschmark, but the fixing of any weak currencies inflexibly to stronger ones. The resource cost of the euro over the past two decades must have been stupendous.
A common currency as a means of imposing wage or fiscal discipline on uncompetitive states is a crude economic sanction. As with all sanctions, it corrupts and distorts domestic politics and makes electorates hostile to external pressure. To Eurocrats this hostility, like democracy itself, is a little local difficulty. But sooner or later, push comes to shove. Greeks and Italians are toppling leaders who fail to listen to them, and voters in Germany are threatening likewise. European political union, the universalist dream of visionaries, has met its Waterloo.
Some confederacies have worked, such as the US, India and the United Kingdom (so far). But the EU was always a confection of elitist diplomacy, supported by Europe's peoples only for as long as they thought it would bring them money. It sought to craft a political entity from cultures whose differences have defied Hapsburgs, Bourbons, Napoleon and Hitler alike. Political union is a discredited orthodoxy and its advocates should retreat gracefully.
The sensible route forward is not underpinning the euro at some new and temporary frontier, and "kicking the can down the street". It is for those states that sincerely wish to merge their political institutions with their neighbours – there must be precious few – to find common ground within the euro.
Countries in southern Europe must recover their economic separateness and their political souls, writing off debts and devaluing their currencies, as Britain has done. Then Europe can find a new equilibrium. Metaphors of "two-speed" Europe, inner and outer clubs, and trains or planes being missed are meaningless. Nicolas Sarkozy and Angela Merkel are right, as is David Cameron. A new and more flexible constitution for Europe is blatantly needed.
This constitution will be easier to define than to engineer. It must somehow retain the (overrated) gains of free trade, but accept that there will be many unlevel playing fields. The German Reichstag or Bundesbank cannot legislate for Greek labour laws, Italian opening hours or British tax havens. The currencies of less competitive states must float. The lash of devaluation and domestic austerity is one thing when self-imposed. When edicts emanate from unaccountable foreign agencies, as now in Greece and Italy, it is not. There could be no more disastrous last chapter to this sorry saga than the crude imposition of German "discipline" on the weaker members of the EU. Who would enforce it?
Europe is a continent, not a panacea. It can no longer be seen as an ideological construct, whose adherents treat all challenge as an offence against infallibility. Historically, its strength has been its diversity, a high street not a hypermarket of nationalisms. Each time a centralised power has denied this and struggled to impose "union", the outcome has been catastrophe, followed by the need to restore and reassert the sovereignty of nations. This time round, the catastrophe has remained economic. It could yet be a near-run thing.
Ambrose Evans-Pritchard has covered world politics and economics for 30 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London. Subscribe to the City Briefing e-mail.
Sorry, there is no euro break-up plan – yet Reports of plans for a break-up of the euro are premature |
The Brussels press corps do not believe it. Nobody seems to know which German official is briefing behind the scenes that "you’ll still call it the euro, but there will be fewer countries." The claims do not remotely reflect the stated position of Chancellor Merkel and President Nicolas Sarkozy. Merkozy might like to see Greece tossed to the wolves. That is a different matter. There is a drive for a core Europe or "Avant-Garde" that pushes ahead with closer union, but that is mostly directed against the UK and other members of the awkward squad. Reuters seem to have conflated two separate issues. The reality is that EU leaders are still unwilling to contemplate an orderly break-up of monetary union, or to deploy the system’s dwindling reserve of credibility to prepare for this traumatic moment. To the extent that the Reuters story catches one vein of thought in EU capitals, it is about forcing weak states to leave EMU. This is the worst possible outcome. It can only set off a chain reaction, ultimately engulfing France. At that point the whole eurozone would spiral into a catastrophic depression – if it is not already. Germany itself would be ruined. My own proposal – like that of Hans-Olaf Henkel, the former head of Germany’s BDI industry confederation – has long been for a radically different kind of break-up. Germany and its satellites should leave, bequeathing the euro, the ECB and other EMU institutions to a Latin union led by France. The euro debt contracts of the south would remain intact. (It is crucial that France stays in the southern bloc, otherwise the instant devaluation of the south would be too great, and France’s banks would blow up on Italian debt) If conducted skilfully, the revalued Teutonic Thaler could be held by exchange and capital controls at a 30pc premium for long enough to stabilise the two systems. Ultimately each side would get what it wants: Germany could enjoy the stronger currency it needs; the south would restore labour competitiveness without having to go through a decade of grinding deflationary slump. This itself would reduce the risk of defaults. I suspect that within five years, the Latin half would prove to be the more dynamic bloc. Obviously Germany, Holland etc would have to recapitalise banks to absorb the shock of 30pc FX losses on their Club Med bonds. The banking system might have to be nationalised. So what? This would be much cheaper than the trillions now needed to prop up EMU’s rotten edifice. It addresses the core problem of north-south currency misalignment within EMU that lies behind the whole crisis. Unfortunately, neither Berlin nor Paris seem ready to think along these lines. It would require a complete purge of the political elites in both countries. Given this strategic fact – and given the risk that Europe will take us all hurtling into disaster – the authorities must instead step up to the plate and deploy the ECB as a lender of last resort to halt the debt spiral. (Yes, the ECB may be incapable of playing this role, since it has no sovereign indemnity. That is a risk. All possible outcomes are by now fraught with danger.) This must be backed by a broader switch away from 1930s Laval-Bruning liquidationist and contraction policies. There is no justification for allowing real M1 deposits to contract across most of the eurozone – and to plunge in the south – as has occurred over recent months. For a monetarist central bank, the ECB is remarkably insouciant about money. The EU must slow the pace of fiscal contraction and launch a monetary blitz to lift the south out of chronic depression. A 5pc nominal GDP growth target for euroland for as long as it takes would do the trick. I believe central banks have the capability to deliver such result. Let me be clear, this is not my preference. It would better for greater Germany to leave EMU. But given the evidence so far that Germania has no intention of taking such a course, it must instead drop its opposition to the sort of radical reflation stimulus so obviously needed to save monetary union and avoid a savage slump. What Germany cannot continue to do is to refuse to leave EMU, and refuse to reflate. This is not a policy. The rest of the world is entirely entitled to make its irritation known. Note: Let us hope it will, then we can protect our industry. RH TelegraphEurozone split 'would destroy single market’The entire European single market could collapse if countries are forced to leave the euro, the head of the European Union has said. |
11:28PM GMT 11 Nov 2011 The warning from Herman Van Rompuy came after David Cameron said there was now a “big question mark over the future of the eurozone”. Angela Merkel, the German chancellor, is next week expected to back proposals to change European treaties to allow countries to leave the euro. French and German officials are understood to have begun discussing how countries such as Greece and Italy could be forced out of the eurozone if they refuse to cut public spending and borrowing. However, Mr Van Rompuy, the president of the European Council, said: “Let us be clear: we will not prune the eurozone to a more selective club. “That would be contrary to the letter and the spirit of the European political pact, as embodied in the treaties. “If the eurozone’s integrity would not be preserved, one should not take the continued functioning of the internal market for granted.” Yesterday, there was some respite in the market turmoil that has swept the world over the past few days following political developments in Italy and Greece. There is growing optimism that Italy’s economic collapse may be averted and Silvio Berlusconi is expected to step aside as prime minister today after austerity plans are formally approved. After months of dithering by his fractured coalition, the Senate, the upper house of parliament, voted to approve the multi-billion-pound package of spending cuts by an overwhelming majority of 156 to 12. The measures, which were demanded by the EU and are intended to calm market fears over Italy’s ability to handle its €1.9 trillion public debt, are expected to be passed and signed into law by the lower Chamber of Deputies today. Mr Berlusconi is then expected to step down, paving the way for what is likely to be a technocratic government led by Mario Monti, a respected economist and former EU Commissioner. The passing of the budget measures helped calm the financial markets, with the cost of Italian government borrowing falling sharply to 6.6 per cent, having risen to an unsustainable 7.5 per cent earlier in the week. European stock markets rose by more than three per cent. However, investors are braced for further turbulence next week as up to 100 MPs from Mr Berlusconi’s party, ncluding several of his ministers, are reported to be opposed to the new government before it has even been formed, adding to concerns that the party could be torn apart over the issue. “I don’t believe markets should decide governments,” Altero Matteoli, the transport minister, said. “In a moment of crisis it should be voters who decide.” The Northern League, which was Mr Berlusconi’s most powerful ally during his three-year term, said it would not back the new administration and called for early elections. However, speaking in Florence, Mr Van Rompuy said: “This country needs reforms, not elections.” In Greece, the new national unity government was finally sworn into office following a week of wrangling. “With the unity of all people, we will succeed,” said Lucas Papademos, the new prime minister. The EU and the International Monetary Fund are seeking reassurances from the new administration that it will urgently introduce austerity cuts. Speaking on BBC radio yesterday, Mr Cameron said he was focused on protecting Britain from the full force of the eurozone crisis. “These are very worrying times. It’s a very difficult time for the eurozone, there’s real turbulence in the markets, real question marks over whether countries can deal with their debts and a big question mark over the future of the eurozone,” he said. “My responsibility, is, of course, to try and help bring about a solution to those problems, but above all my priority has got to be to keep the British economy safe, to make sure that if we’re going to face a difficult time because of what’s happening in the eurozone, we come safely through the storm.” A spokesman for the Prime Minister admitted shortly before the interview that Mr Cameron had not spoken to major world leaders in the past few days, leading to accusations that Britain was being sidelined in international negotiations. Markets rise but contagion fears spread to SpainPolitical progress in Italy and Greece pushed stock markets higher but economists warned of stormy weeks ahead as attention turned to Spain amid fears it could be the next economy to come under the spotlight. Protesters hold signs reading "Neither Tremonti nor Monti" during a protest in front of the Ministry of Finance in Rome on Friday. Photo: Reuters 9:13PM GMT 11 Nov 2011 |
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The FTSE 100 rose 100.57 – or 1.9pc – to 5545.38, closing a turbulent week 1.3pc higher. In Italy the FTSE MIB was up 3.7pc on the day, while France's CAC rose 2.8pc, the German Dax gained 3.2pc and in the US the Dow Jones closed 2.2pc higher. The rally came as bond yields fell with Italian 10-year debt touching 6.4pc on signs that politicians are finally recognising the scale of the crisis. In Italy, hopes are growing that a new government could be installed as early as tomorrow after the Senate approved an economic reform bill, paving the way for Silvio Berlusconi's resignation. The austerity package, seen as crucial to averting an Italian bail-out, will go before the country's lower house today before an emergency government is installed. Mario Monti remains the frontrunner to succeed Mr Berlusconi. "The most important element to overcome this crisis is a trusted and able new Italian government that can really fulfill the structural changes that are needed," said Ewald Nowotny, a member of the governing council at the European Central Bank (ECB). Markets also took cheer as Lucas Papademos was sworn into office in Greece after days of political wrangling. Inspectors from the International Monetary Fund (IMF), European Union (EU) and ECB are set to visit Athens next week, potentially leading to the release of €8bn (£6.9bn) in bail-out funds. Ioannis Mourmouras, a new assistant finance minister, said the new government's sole task was to implement the necessary austerity reforms: "Greece is at a crossroads. What is at stake is the future of the country within the eurozone." While traders took comfort from progress in Italy and Greece, fears were growing over the health of the Spanish economy after GDP data showed the country grinding to a halt in the third quarter. Economists are increasingly sceptical that the eurozone's fourth largest economy will be able to meet deficit reduction targets. "The economic recovery in Spain has ground to a complete halt," said analysts at ING. "We fear that the Spanish economy might slip into recession soon – perhaps as soon as the current fourth quarter. Our base case scenario envisages no economic growth in 2012." Spain's deficit plans are predicated on the economy growing 1.3pc this year and by 2.3pc in 2012, targets seen as increasingly optimistic. With the country set to hold elections on November 20, a new government would likely have to push through further austerity measures, potentially leading to political infighting or popular opposition. Spain's bond yields have moved higher in recent days, ending yesterday at 5.9pc. Fears have also been raised over the country's banking system with analysts pointing to an alarming outflow in retail deposits this year. About half the 2012 funding requirements of Spanish banks are planned to be met through deposits. Analysts at Barclays Capital argue this means the country's banks will need to see 4pc growth in deposits, but so far in 2011 there has been 2pc shrinkage. Weighing on the banks further is the prospect of property write-downs. French broker Cheuvreux estimates that 50pc of Spanish construction companies have either already defaulted on their loans or are likely to do so. Speculation is growing that much of the land held on the books of Spanish banks will have to be marked down significantly before year-end. Fears over Spain's future came as the IMF issued a report – prepared for last week's G20 summit but only released yesterday – warning that advanced economies could fall back into recession unless world leaders moved with greater urgency to boost growth. The organisation raised particular concerns over how fiscal stability would be achieved in countries including the US and Japan. Markets rise but contagion fears spread to SpainPolitical progress in Italy and Greece pushed stock markets higher but economists warned of stormy weeks ahead as attention turned to Spain amid fears it could be the next economy to come under the spotlight.Protesters hold signs reading "Neither Tremonti nor Monti" during a protest in front of the Ministry of Finance in Rome on Friday. Photo: Reuters 9:13PM GMT 11 Nov 2011 |
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The FTSE 100 rose 100.57 – or 1.9pc – to 5545.38, closing a turbulent week 1.3pc higher. In Italy the FTSE MIB was up 3.7pc on the day, while France's CAC rose 2.8pc, the German Dax gained 3.2pc and in the US the Dow Jones closed 2.2pc higher. The rally came as bond yields fell with Italian 10-year debt touching 6.4pc on signs that politicians are finally recognising the scale of the crisis. In Italy, hopes are growing that a new government could be installed as early as tomorrow after the Senate approved an economic reform bill, paving the way for Silvio Berlusconi's resignation. The austerity package, seen as crucial to averting an Italian bail-out, will go before the country's lower house today before an emergency government is installed. Mario Monti remains the frontrunner to succeed Mr Berlusconi. "The most important element to overcome this crisis is a trusted and able new Italian government that can really fulfill the structural changes that are needed," said Ewald Nowotny, a member of the governing council at the European Central Bank (ECB). Markets also took cheer as Lucas Papademos was sworn into office in Greece after days of political wrangling. Inspectors from the International Monetary Fund (IMF), European Union (EU) and ECB are set to visit Athens next week, potentially leading to the release of €8bn (£6.9bn) in bail-out funds. Ioannis Mourmouras, a new assistant finance minister, said the new government's sole task was to implement the necessary austerity reforms: "Greece is at a crossroads. What is at stake is the future of the country within the eurozone." While traders took comfort from progress in Italy and Greece, fears were growing over the health of the Spanish economy after GDP data showed the country grinding to a halt in the third quarter. Economists are increasingly sceptical that the eurozone's fourth largest economy will be able to meet deficit reduction targets. "The economic recovery in Spain has ground to a complete halt," said analysts at ING. "We fear that the Spanish economy might slip into recession soon – perhaps as soon as the current fourth quarter. Our base case scenario envisages no economic growth in 2012." Spain's deficit plans are predicated on the economy growing 1.3pc this year and by 2.3pc in 2012, targets seen as increasingly optimistic. With the country set to hold elections on November 20, a new government would likely have to push through further austerity measures, potentially leading to political infighting or popular opposition. Spain's bond yields have moved higher in recent days, ending yesterday at 5.9pc. Fears have also been raised over the country's banking system with analysts pointing to an alarming outflow in retail deposits this year. About half the 2012 funding requirements of Spanish banks are planned to be met through deposits. Analysts at Barclays Capital argue this means the country's banks will need to see 4pc growth in deposits, but so far in 2011 there has been 2pc shrinkage. Weighing on the banks further is the prospect of property write-downs. French broker Cheuvreux estimates that 50pc of Spanish construction companies have either already defaulted on their loans or are likely to do so. Speculation is growing that much of the land held on the books of Spanish banks will have to be marked down significantly before year-end. Fears over Spain's future came as the IMF issued a report – prepared for last week's G20 summit but only released yesterday – warning that advanced economies could fall back into recession unless world leaders moved with greater urgency to boost growth. The organisation raised particular concerns over how fiscal stability would be achieved in countries including the US and Japan. Telegraph US Treasury Secretary Timothy Geithner says Europe remains 'central challenge' to global growthUS Treasury Secretary Timothy Geithner said Europe remains the “central challenge” to global growth and must “move quickly” to restore financial stability.By Telegraph staff and agencies |
8:32AM GMT 11 Nov 2011 Geithner, who is in Honolulu attending the 21-nation Asia- Pacific Economic Cooperation conference, said that the APEC countries are all directly affected by the Eurozone crisis and he encouraged them “to take steps to strengthen growth in the face of these pressures from Europe”. European finance ministers earlier this week failed to bridge divisions over the European Stability Mechanism, a permanent rescue fund aimed at stemming the growing crisis over sovereign debt facing countries like Greece and Italy. The world economy is in a “dangerous phase”, IMF Managing Director Christine Lagarde said this week. “As the United States continues to work through the problems that caused our crisis and Europe confronts a period of slower growth, Asian economies will need to do more to stimulate domestic demand growth - both so they are less vulnerable to slowdowns, such as the situation in Europe, and so they can continue to contribute to global growth,” Geithner said at a news conference today. Geithner said concern over Europe dominated discussions in APEC meetings and hallway discussions. He didn’t point to ways the countries could assist Europe and instead remarked on how they could protect their own growth. “These economies, including the United States, have the capacity to do things now to make growth stronger both to offset some of the pressures they’re facing in Europe but also because the world as a whole - even when Europe stabilizes you are going to see growth damaged by the magnitude of the crisis so far,” Geithner said. “So there is a very strong rationale in those economies that have the capacity to do it to act now to strengthen growth.” Italian 10-year bond yields surged to a euro-era high of 7.46pc on November 9 as investors questioned the ability of its lawmakers to restrain the euro-region’s second-largest debt load after Greece. While the yield slipped to 6.89pc on Thursday, the crisis showed signs of spreading to France. Credit default swaps on the euro region’s second-largest economy rose eight basis points to a record 204 on Thursday, CMA prices showed. Italian Prime Minister Silvio Berlusconi’s offer to resign on November 7 triggered questions about who will lead the nation and left it struggling to produce a government stable enough to deliver austerity. Lucas Papademos, the former vice president of the European Central Bank, was named to lead a Greek unity government charged with securing financing to avert the country’s economic collapse. At €1.9 trillion, Italy’s debt exceeds that of Greece, Spain, Portugal and Ireland combined, though unlike those nations, it has systemic importance as the world’s third-largest bond market and eighth-biggest economy. Geithner said Europe is making progress with a “good framework” and he encouraged them to do more. “That basic framework is a good framework but it needs to be put in place with the speed that markets require and with the force necessary to restore confidence and they’re moving ahead,” Geithner said. “We just need to see them move more quickly and with more force behind it.” Lael Brainard, US Treasury undersecretary for international affairs, said on November 9 that Europe must speed up construction of a “firewall” to protect countries that have sound policies. The US exposure to Italy is far greater than Greece. US financial institutions’ direct loans to borrowers in Italy totaled $36.7bn, compared with $232.3bn in other types of indirect exposure, according to Bank for International Settlements data. At the same time, US banks had total direct risk to Greece of $7.32bn as of December and indirect commitments of $34.1bn, BIS data show. Failure to restore order to Italy may lead it to join Greece, Portugal and Ireland in seeking outside help. The first port of call would likely be the €440bn European Financial Stability Facility. A country can now tap a precautionary promise of support of up to 10pc of its gross domestic product - about €160bn in Italy’s case. Geithner also encouraged China to allow its currency to strengthen. “This process of rebalancing will be aided by exchange rate policies in China and other Asian economies that allow their currencies to adjust in response to market forces,” he said. “China, in particular, must continue to allow its currency to strengthen, and China has acknowledged the importance of faster exchange rate adjustment.” The APEC finance ministers said in a communiqué that they are committed to moving “more rapidly” toward market- determined exchange rate systems and will increase currency flexibility to reflect their economic fundamentals. The Obama administration contends that China’s currency is undervalued and has pushed it to allow the yuan to strengthen faster. President Barack Obama has pressed Chinese leaders to take steps to boost domestic consumption to reduce lopsided global trade and investment flows. President Barack Obama is launching a charm offensive to hitch the US economy to growth opportunities in Asia that he hopes can help power the recovery he needs for re-election. Obama, who was born in Hawaii and spent part of his childhood in Indonesia, will host Asian leaders including Chinese President Hu Jintao and Japanese Prime Minister Yoshihiko Noda in Honolulu this weekend to seek to improve trade ties across the Pacific. TelegraphEurozone crisis: stained hands of banker tasked with cleaning up the Greek messGreece installed a former central bank chief as its new prime minister on Thursday night, despite criticism that he was one of those responsible for getting the country into its current mess. Lucas Papademos appointment as prime minister was seen as an attempt to restore confidence in Greece's ability to deliver austerity measures, cement a European debt deal and stave off national bankruptcy Photo: REX |
10:03PM GMT 10 Nov 2011 Lucas Papademos, who was governor of the Bank of Greece for eight years, was appointed leader of an interim government, backed by the four largest parties, following the resignation of George Papandreou. However, there was an angry reaction on the streets to the choice of Mr Papademos, who was one of the key players in Greece's entry into the eurozone a decade ago – a process allegedly underpinned by statistical fraud about the real state of the country's economy. He also went on to serve as vice-president of the European Central Bank. Banners at a Communist Party-led demonstration denounced Mr Papademos as puppet of the big banks. His appointment as prime minister was seen as an attempt to restore confidence in Greece's ability to deliver austerity measures, cement a European debt deal and stave off national bankruptcy. Speaking after accepting the role, Mr Papademos, 64, said membership of the euro would eventually deliver monetary stability and ensure Greece made the adjustments needed to restore economic growth. He warned that hard choices would have to be made by his government in the coming weeks. "I am not a politician but I have dedicated most of my professional life to exercising financial policy both in Greece and in Europe," he said. "Greece is at a crucial crossroads – the course will not be easy. But the problems, I'm convinced, will be solved. "They will be solved faster, with a smaller cost and in an efficient way, if there is unity, agreement and prudence." The Greek stock market jumped sharply when Mr Papademos arrived at the presidential palace to begin talks with the head of state and political leaders. But his appointment was only settled at the last minute after five days of political wrangling in which his name was proposed then withdrawn several times. "On Tuesday morning he thought he had a deal," a Greek official said. "But by Tuesday afternoon it appeared it fell through and he didn't know why. Papademos wanted to be in control, not a figurehead." Mr Papademos will lead a government backed by both the governing socialists and the opposition conservatives that will operate until early elections, tentatively set for February. Commentators were quick to point out the irony in placing Greece's eurozone survival in the hands of a man who helped ease the country into the single currency in the first place. As head of Greece's central bank from 1994 to 2002, the sober banker reduced inflation and presented figures showing the budget deficit had been brought down to European limits. However, it has been alleged that secret deficits were being run up and that Athens had hidden the extra borrowing through money market manipulation. Greece used a form of currency swaps to raise the equivalent of €2.4 billion in the run-up to joining the currency in 2001 and bring its budget deficit down to the annual limit of three per cent. But the arrangements reduced government revenue over time, as airport taxes and lottery proceeds were secured against the debt. Nicolas Sarkozy, the French president, acknowledged last week that the original cover-up had led to the current crisis. He said: "It was an error because Greece entered with false figures; it was not ready." Panagiotis Gennimatas, a leading banker, called for Mr Papademos to answer questions about his role in the falsified statistics. "Over a decade and in full agreement with governments he was supplying false information to the European institutions, so that Greece could enter the monetary union," he claimed. The European Commission, the European Central Bank and the International Monetary Fund had issued an ultimatum to Greek politicians to back a technocrat-led national government last week. That demand came after Mr Papandreou shocked the institutions underwriting his debt-ridden government by proposing a referendum on a €130 billion European debt deal that took months to work out. The interim government's mandate should see it pass the bail-out deal to ensure the country receives its next, critical instalment of loans. Under the new deal, private bondholders will forgo 50 per cent of their Greek debt holdings so the country can bring its massive debts under control. Eurozone officials were withholding the next instalment of loans, without which Greece faces default in a matter of weeks, until Athens formally approves the new debt deal. "Although this will be a transitional government, its workload will be extremely intense. A second programme of financial assistance must be rapidly concluded," a joint statement from the EU presidents José Manuel Barroso and Herman Van Rompuy said. Many Greeks view austerity as a double-edged sword that has triggered a collapse in living standards. Shuttered shops and the emergence of soup kitchens on the streets of Athens provide unmistakable evidence of the collapse of the domestic economy. The political crisis has been a further blow to Greek self-confidence. Barroso’s twisted logic is anathema to BritainWilliam Rees-Mogg  November 11 2011 12:01AM Far from drawing closer to the EU, disentangling ourselves is a better (and quite feasible) plan
This week José Manuel Barroso, the President of the European Commission, made it clear that there has been no pause in the federalising ambitions of the Commission. In fact there have been two reactions to the euro crisis. Some eurosceptics believe Britain could use its bargaining power to insist on a recovery of national powers. The opposite view, which President Barroso takes, is that the crisis underlines the need to transfer further powers to Brussels. As he put it: “One of the issues we have to address is this: how can we have a more effective way of responding to this situation? For that, more integration and more discipline at the European level is needed.” When asked about the British reaction this week, the President commented: “Oh, the British what can I say?” This duly got a laugh. The UK is seen as irrelevant. The common view in Britain is that we are fortunate not to be equally involved in the euro crisis, because we did not choose to become members of the eurozone. But President Barroso denies that Britain had a permanent right to opt out of the euro. He said that all European countries “have a legal duty to join”; there is, for him, no such thing as a permanent legal right to an opt-out. Perhaps the Barroso doctrine can best be summed up in his statement that “the euro is the norm for Europe”. He even suggested that the European Court of Justice would impose the law if that became necessary.
(anyone care to predict the conseuences here if the ECJ ordered us to join, against out will? The man is boners Idris) The British are likely to be irritated by the “heads I win, tails you lose” logic of Mr Barroso’s argument that we must accept fiscal integration because the eurozone is defective and needs additional powers; and that we must also accept fiscal integration because the euro has been such a success. But by now this is familiar European double logic. What matters is the real issue: Mr Barroso maintains that Europe’s nation states have committed themselves to the loss of the power to tax and spend, the core of national sovereignty. Under British law this ought to trigger a referendum, which is now required when new powers have been transferred to Brussels. At this stage it would be wrong to put too much confidence in assurances that there will be a referendum. The Lisbon treaty which developed from a draft for a federalist constitution for Europe was garlanded with promises of referendums that have never happened. A federal budget would create a United States of Europe; we are very close to that already. So close, indeed, that a new argument is being used by those who sympathise with that concept but know that the majority of public opinion is against them. They argue that it would no longer be possible for Britain to leave the EU because we are so closely involved, tied to Europe by so many thousand webs of law and trade. There is a one-word answer to this argument, and it is “Ireland”.
Before Irish independence was signed in 1923, the Anglo-Irish legal systems and trade connections were totally integrated more so than Britain and Europe today. Yet by a process of changing what needed to be changed and using the existing institutions where they had proved effective, a system of Irish governance was rapidly established whose independence is not in serious doubt.
The level of interdependence of the nations of the EU has been much greater than was necessary or efficient. Europe is much too closely integrated, with too little democratic independence. One defect of the EU has stood out in this euro crisis. It was caused by a lack of confidence after a banking panic. This crisis at first focused on the smaller countries Ireland, Portugal and Greece. There is one power that had the resources and trust to have stopped this first phase before it moved on to Italy and Spain. That country is Germany, which took a negative view of the prompt and substantial assistance by the European Central Bank that alone could have forestalled the crisis. In the 19th century, Britain acted as the lender of last resort to a wide variety of trading partners; on the whole we got it right. In the 20th century the US took over the role; J. P. Morgan became the greatest banker in the world. Since the ERM of the 1980s, the European leader has been Germany. Whether because of memories of inflation or the pressure of politics, Germany has not done the job as competently as it performs most commercial dealings. EU bailout fund chief Klaus Regling calls on Italy to act fast to reassure marketsThe head of the eurozone crisis fund called on Italy to act swiftly to reassure markets about its financial and political stability, in an interview in several European newspapers on Friday. Klaus Regling said the bailout fund was ready to step in to help Italy if necessary Photo: Bloomberg News |
And he said that the fund was ready to help Italy immediately if it was asked. "Italy doesn't have much time to reassure the markets," said Klaus Regling, head of the European Financial Stability Facility, according to the Suddeutsche Zeitung newspaper. "The country needs a functioning government as soon as possible." Italy is in political limbo after Prime Minister Silvio Berlusconi announced he will quit in the face of a worsening debt crisis that is spreading across Europe. Italy's parliament will on Friday debate a new series of austerity measures designed to fend off bankruptcy in the country, the eurozone's third-biggest economy. Regling said the fund was ready to step in to help Italy if necessary. "If a country comes and says it needs help straight away, then we are ready," he said |
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