On 13/11/2011 07:53, robert henderson wrote: Note: Effing unbelievable. What we must watch out for is a smaller northern Eurozone around northern Europe being created and our politicos climbing on that bandwagon. RH Lord Heseltine: We should still ditch the pound
Michael Heseltine, the former defence secretary, claims that Britain made a mistake not joining the single currency and should still sign up for the euro.
“Let me tell you this,” he said. “The nation state is in decline everywhere — superseded by supra-national structures and blocs.
http://www.telegraph.co.uk/finance/financialcrisis/8885498/EU-turmoil-revives-calls-for-referendum.html
EU turmoil revives calls for referendumDavid Cameron is to face renewed pressure to call a referendum after senior European Commission officials said the overhaul of the eurozone would trigger a national poll in Ireland.
EU turmoil revives calls for referendum
David Cameron is to face renewed pressure to call a referendum after senior European Commission officials said the overhaul of the eurozone would trigger a national poll in Ireland.
On Wednesday, Nick Clegg, the Deputy Prime Minister, talked with EU officials in Brussels to see if treaty change and calls for popular votes could be averted Photo: Jeff J Mitchell/Getty Images
By Bruno Waterfield, Brussels
9:56PM GMT 11 Nov 2011
European leaders will redraft key treaties to ensure that beleaguered economies cannot borrow or spend too much in future as a condition of receiving billions of euros in rescue packages.
However, the treaty changes will involve a transfer of sovereignty, triggering an Irish referendum. The Irish vote, to be proposed at a European Union summit next month, will increase demands in Britain for a popular vote on Europe, setting off calls for referendums across Europe in countries such as Holland, Finland and France.
The Government fears the pace of developments in Europe, including the imposition of "technocrat governments" in Greece and Italy, combined with a German demand for treaty change, will make a campaign for an EU referendum unstoppable.
Ministers have stopped saying that they plan to use treaty change to take powers back from the EU. This follows private warnings from Germany that it is not willing to trade eurozone "fiscal union" for British opt-outs. (is anyone surprised, by this latest failure of our spineless and deceiving PM? Idris)
Bill Cash, chairman of the Commons scrutiny committee, said last night he was concerned that the emergence of French plans for a twin-track Europe, regular eurozone summits and German domination of EU decision-making amounted to a serious change in Britain's place in Europe.
"Despite all the talk about it being a limited treaty change this is real fundamental change," he said. "Germany is pushing with determination to have a Europe made in its own image. The changes are a fundamental change in the relationship between Britain and Europe. A referendum is absolutely demanded."
Douglas Carswell, the Tory MP for Clacton, said the pace of change, with France and Germany raising the idea of expelling Greece from the eurozone last week, "shows that the Westminster tribe and the mandarins are completely out of their depth". He has called on the Prime Minister to spell out the British strategy in Europe and to reshuffle the team of negotiators involved in EU treaty talks.
"Unless we are to be overwhelmed, we need a strategy," he said. "Cameron must fire our useless dealmakers and put any new deal to the people."
On Wednesday, Nick Clegg, the Deputy Prime Minister, talked with EU officials in Brussels to see if treaty change and calls for popular votes could be averted.
He warned Herman Van Rompuy, the European Council president, that his plan to present a report on "limited treaty change" to an EU summit in December would open a "Pandora 's box" across Europe. "It is not just a British thing," he said. Similar fears would be expressed by politicians in Austria, Finland, Ireland or even France, "where they have had pretty unhappy experiences with referendums on Europe in the past".
Catherine Day, the secretary-general of the European Commission, said treaty change proposals to remove sovereignty over national budgets for euro members will need to be passed by a popular vote in Ireland.
The proposed changes would amount to a "big transfer of sovereignty", said an unnamed commission official, working for the EU-IMF "troika" running Ireland, Greece and Portugal. "Personally, I would not support something like this if it did not have democratic sanction," he told the Irish Times.
Ms Day, an Irish national and the most senior official in the commission, has conceded that a vote in Ireland would be necessary under the country's constitution.
Irish voters have twice rejected European treaty changes in referendums but on both occasion they were passed after the EU demanded second votes.
Last week, the Irish government warned that it would have "great difficulty" passing a new treaty at a time when Ireland was undergoing a deeply unpopular EU-IMF austerity programme.Telegraph
Eurozone collapse 'will send continent into depression’
The collapse of the eurozone would cause a crash that would instantly wipe out half of the value of Europe’s economy, plunging the continent into a depression as deep as the 1930s slump, the president of the European Commission has warned.
“Populism and sometimes even nationalism raises its head across our continent,” he said. “This is ignoring the global realities as well as our common history that teaches us that this continent is simply too small and too inter-dependent for us to stand apart, to turn our backs to each other.”
Telegraph
Eurozone 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.
Telegraph
Fate of euro is in the balance, warns Cameron as Coalition plans for 'Armageddon’
David Cameron warned yesterday that the “moment of truth is approaching” over the future of the euro in the wake of the Italian economic crisis.
The folk memory that makes Germany reluctant to act over the euro
A fear that inflation leads to nationalist extremism lingers in Berlin – but European unity will not die if the Germans allow the euro to fail, argues Daniel Johnson.
Ironically, the Germans themselves have played to the gallery by suggesting that the alternative to the single currency may be war. “If the euro fails, Europe fails,” Chancellor Merkel told the Bundestag last week. “We have an historical obligation to protect by all means Europe’s unification process, begun by our forefathers after centuries of hatred and bloodshed.”
http://www.guardian.co.uk/ politics/wintour-and-watt/ 2011/nov/11/davidcameron- angela-merkel
Angela Merkel to David Cameron: support us or we leave UK behindGerman chancellor told prime minister that eurozone countries are prepared to draw up their own treaty without Britain
All roads may lead to Rome but in the shaping of today's Europe they went via Sicily.
The allies began their slow campaign to win control of continental Europe in the second world war when Operation Husky, the invasion of Sicily, was launched in July 1943. A decade later, the key step towards the creation of the EEC was taken in Sicily at the Messina Conference in June 1955. Two years later the EEC was formally established in the Treaty of Rome signed in March 1957.
Italy's role in shaping modern Europe serves as a reality check for those who have been speculating that Italy could drop out of the euro if it is overwhelmed by a sovereign debt crisis. Sources in Brussels tell me that eurozone leaders are absolutely determined that Italy should remain at the top table. There is one reason above all that explains this thinking: Italy is one of the six founding members of the EEC. In the eyes of eurozone leaders, hell will freeze over before Italy leaves the euro.
For the moment eurozone leaders want Greece to remain in the euro, though they do not feel such a strong attachment to a relative newcomer. Greece only joined the EEC in 1981.
If Italy is to remain within the eurozone, drastic measures will have to be taken. It is one thing to stand by a relatively small economy like Greece, as a senior Whitehall figure told me recently. It is quite another to stand by the third largest economy in the eurozone which also has the third largest bond market in the world. It would take around €1tn to bail out Italy, dwarfing the eurozone's European Financial Stability Facility (EFSF).
If Italy is to remain in the euro then two big steps will probably have to be taken, assuming that Italy's new prime minister takes the initial step of introducing austerity measures to reassure the markets. The steps are:
• The European Central Bank, which has been buying limited quantities of Italian debt, acts as a lender of last resort. Germany is adamantly opposed to this because it believes this would jeopardise the ECB's independence and could lead to the historically dreaded inflation. David Cameron made clear on Thursday that Britain believes that the time is fast approaching for the ECB to step in. I blogged last week on Anglo-German tensions.
• The EU's Lisbon Treaty is revised to place a new framework for fiscal co-ordination, or even fiscal union, among the 17 members of the eurozone on a legal footing.
The three largest members of the EU – Germany, Britain and France – have been involved in something of a tussle, though they are taking different sides on each of the two steps.
On the ECB, Britain is siding with France which would like the bank to guarantee the EFSF. For all the talk of the new Frankfurt Group – France, Germany, the ECB and the European Commission – dominating Europe, Germany is still resisting the French idea on the ECB. Angela Merkel vetoed it at the meeting in Frankfurt last month which gave rise to the name of the new group.
On the treaty negotiation, Britain and France take opposite views, with Germany in the middle. Britain has reluctantly accepted that a narrow treaty change will probably have to be agreed by all 27 members of the EU, though it will want assurances that the City of London will not be threatened. France would like a treaty change to be agreed by the 17 members of the eurozone. Nicolas Sarkozy outlined this thinking in a speech in Strasbourg on Tuesday when he revived the French dream of creating a two speed Europe with an inner core of the eurozone members and an outer core of the ten countries outside the eurozone.
Germany would like a treaty to be agreed by all 27 members of the EU so that the new fiscal arrangements would be anchored in the institutions of the EU. But I understand that Merkel became so frustrated with Cameron's approach that she warned him in Brussels on 23 October, at the first of the emergency European Councils, that she would have to go along reluctantly with Sarkozy's idea for a eurozone-only treaty if Britain did not moderate its views.
One source familiar with the European Council told me:
It is amid this background that José Manuel Barroso, the president of the European Commission, entered the fray on Wednesday with a major speech in Berlin. One line caused some irritation in London when Barroso had a pop at Britain:
Barroso believes that Britain should hug him and Merkel close because a view is developing in Brussels that France is attempting to unravel two key British achievements over the last 20 years:
• The enlargement of the EU from 15 members in 2004 to 27 today. France was always wary of enlargement because it believed that widening the EU would make it more difficult to deepen the EU and create an "ever closer union". The key piece of evidence to support the view in Brussels that France is trying to use the eurozone crisis to re-shape the enlarged EU is an article in the FT on 3 November by Jean-Claude Piris, the French former legal counsel of the European Council.
Senior figures in Brussels say the Piris article reflects the views of the Elysée Palace which was not thought to be surprised by its publication. Suspicions about the tactics in Paris were heightened by this passage:
France cannot reverse the enlargement of the EU and the eurozone will, by law, eventually have to include every EU member state bar Britain and Denmark which have opt-outs. But France could ensure that future euro members, such as Poland, would join a body shaped without British influence. This leads to the second area where Barroso has concerns for Britain:
• The single market. Barroso says that it is only the institutions of the EU as a whole that can protect what he called the "integrity of the single market". Translation: Britain may feel uncomfortable with the power wielded by the European Commission and the European Court of Justice. But they offer the only protection against French protectionism.
Crunch negotiations on the EU are always portrayed as historic moments. But the EU is genuinely experiencing a decisive period that will determine its future direction. Vital national interests are at stake but, as ever, opinions are divided across the EU.
The old British tactic of divide and rule, used so ruthlessly during the days of empire, will once again have to be deployed by Britain's EU diplomats. The dry and ferociously clever Jon Cunliffe, who will soon replace the amiable and smooth Kim Darroch as Britain's "perm rep" in Brussels, will have to use all his cunning learnt in his days as a taxi driver to outwit the opposition.Left and Right should join forces against the great euro takeover
As the EU crisis nears its moment of truth we need democrats – not technocrats – in charge.
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.
German Chancellor Angela Merkel tells Greek PM Lucas Papademos that her country will 'stand by' Athens
German 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.
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
Telegraph
Eurozone 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.
Markets rise but contagion fears spread to Spain
Political 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.
Markets rise but contagion fears spread to Spain
Political 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.
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."
US Treasury Secretary Timothy Geithner says Europe remains 'central challenge' to global growth
US Treasury Secretary Timothy Geithner said Europe remains the “central challenge” to global growth and must “move quickly” to restore financial stability.
Telegraph
Eurozone crisis: stained hands of banker tasked with cleaning up the Greek mess
Greece 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.
Barroso’s twisted logic is anathema to Britain
William Rees-Mogg 
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 markets
The 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.
Regling said the fund was ready to step in to help Italy if necessary.
Sunday, 13 November 2011
Telegraph
Lord Heseltine, the former defence secretary, says Britain made a big mistake in not joining the euro. Photo: Geoff Pugh
Tim Walker. Edited by Richard Eden
7:30AM GMT 11 Nov 2011
The leaders of Italy and Greece have resigned and the eurozone appears to be on the brink of breaking up, but Lord Heseltine has lost none of his faith in the single currency.
“We made a great mistake in not joining the euro,” the former defence secretary told a gathering of the Conservative China Group at the Palace of Westminster. “It would have been good for Britain.”
To gasps of incredulity, he went on: “All my political life, we have suffered in this country from a vile disease called inflation.
“Every government, regardless of political stripe, takes the soft option and devalues our currency. If we had joined the euro, the Germans would have forced us to be more competitive. I am telling you this country needs to become more like Germany. We should still join the euro.”
Michael Heseltine, who shared a platform with Tony Blair and Kenneth Clarke at the launch of Britain in Europe in 1999, caused even more consternation with an extraordinary appeal.
“We have unleashed forces that nation states simply can not regulate. That is why we need not just political union within Europe — but, yes, ultimately, some kind of global governance. The Chinese know this; I know this. Believe me, it is the future.”
One Tory MP present commented: “The man has lost the plot. He makes us sound like we’re Greece.
Jose Manuel Barroso, president of the European Commission Photo: EPA
6:20AM GMT 11 Nov 2011
José Manuel Barroso issued his chilling warning as France began diplomatic overtures to create a eurozone vanguard, potentially with fewer than the 17 existing members of the single currency.
Mr Barroso said that if the euro area of the 17 member states or the wider
27-country EU broke apart the estimated initial cost would be up to 50 per cent of European gross domestic product. “It would jeopardise the future prosperity of the next generation. That is the threat that hangs over us,” he said.
In a speech in Berlin aimed at tackling any support for a smaller elite eurozone comprised of the EU’s strongest economies, Mr Barroso warned that the consequence of a split would be a million lost jobs in Germany.
The result of such an economic shock would be emergence of extremism and divisions within Europe, the former Portuguese prime minister told his German audience.
Financial markets tumbled yesterday as news broke that MPs in Germany’s ruling Christian Democratic Union party plan to debate a motion next week allowing countries to leave the euro area.
Angela Merkel, the German chancellor, and Nicolas Sarkozy, the French president, first raised the prospect of a country exiting the euro last week when they said that a proposed Greek bailout referendum would be an in-or-out vote on euro membership.
Leaving the currency area is not envisaged under current euro rules.
George Papandreou, the Greek prime minister, scrapped the ballot before stepping down and handing over power to a national unity government.
Reminding Germany of the legacy of the Second World War, Mr Barroso called on Europe’s largest country and economy to “take its responsibilities seriously”.
“Just as the founding fathers had a vision of Europe after two devastating world wars, we must also now act with resilience and with vision towards a Europe that is strong but open,” he said. “Now is Germany’s time to show that it is fighting the cause of a strong, integrated and competitive Europe.”
A eurozone crash, the commission has predicted, would see £10 trillion wiped off the value of the European economy, a catastrophe that would send living standards plummeting to the levels of Latin America. The shock would wipe out all the gains of Europe’s longest period of peace since the Second World War and herald the political chaos and collapse of governments that ushered in Nazism 80 years ago.
“It would be worse than anything our post-war generation can even imagine,” said an official. “Only those Europeans in their late eighties will have any idea about bad it could get.”
Note: And here come the hystrerial frightners. RH
By Robert Winnett, and Nick Squires in Rome
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.
David Cameron said Britain was 'contingency planning' for a possible break up of the eurozone Photo: PAUL GROVER
By Robert Winnett, Political Editor
7:00AM GMT 11 Nov 2011
The Prime Minister said that it was a “very alarming time for the world economy” and told European leaders that they “must act now”.
The intervention came after Vince Cable, the Business Secretary, raised the prospect of “Armageddon” in the British banking system in the event of the collapse of the single currency.
Mr Cameron said that Britain was now “contingency planning” for a possible split in the euro, following reports that French and German officials had begun discussing this option. He added that the “future of the euro” was now an issue that should be considered.
“Italy is the third largest country in the eurozone,” the Prime Minister said. “Its current state is a clear and present danger to the eurozone and the moment of truth is approaching.
If the leaders of the eurozone want to save their currency then they, together with the institutions of the eurozone, must act now.”
He added that Britain “must prepare for every eventuality”.
Mr Cable admitted that an Italian crisis could have a devastating impact on the British economy.
“It certainly affects our trade and potentially, in this Armageddon narrative, it affects the banking system, but we’re not there yet,” he said.
“We have a very clear commitment to stabilising our own country’s finances, and for shifting the base of the economy and its investments into manufacturing.”
Ed Miliband, the Labour leader, yesterday called for European leaders to hold a summit this weekend and not to leave the meeting until a deal to resolve the crisis had been agreed.
The Prime Minister’s official spokesman said: “What we need is more action. They have had a meeting, they have agreed a package. What they need to do is implement that package.”
Telegraph
Buying vegetables with baskets of notes in 1920: but it was national pride in the Deutschmark that brought about the postwar 'economic miracle’ Photo: ROGER-VIOLLET/TOPFOTO
By Daniel Johnson
8:50PM GMT 10 Nov 2011
A spectre is haunting Europe – the spectre of German domination. As the Heath Robinson structures of the European Union buckle under the weight of their own contradictions, the question on everybody’s lips concerns the Germans. What will they do about the eurozone crisis? Will they try to save the dream of a federal Europe – or let it go up in a puff of smoke?
In the old days, what gave European statesmen nightmares was known as “the German Question”: once it was united by Bismarck, Germany was too big and powerful to be balanced by the other Continental powers. After starting two world wars, the division of Germany was seen as the price of peace in Europe. At the time, the French writer François Mauriac observed with heavy-handed irony: “I love Germany so much that I am glad there are two of them.”
Today the German Question has returned in a new form. Silvio Berlusconi, like other fallen European leaders from Bertie Ahern to George Papandreou, could be forgiven for blaming the Germans for his defenestration. These days it is the call from the Berlin Chancellery, rather than the White House or the Kremlin, that Europe’s weaker brethren dread.
I recall vividly an occasion in 1991, soon after the putsch against Margaret Thatcher, when she presided over a small dinner of sympathetic young intellectuals. I congratulated the former prime minister on her resolute stand in the Cold War, alongside Ronald Reagan, which had done so much to bring down the Berlin Wall. The Iron Lady’s face darkened. In her most imperious tone, she expostulated: “Are you saying that I am responsible for that?”
German reunification was – and is – her deepest regret. She welcomed the liberation of Eastern Europe from communism, but she feared European monetary union, or what her lieutenant Nicholas Ridley called “a German racket designed to take over the whole of Europe”.
Angela Merkel is by no means alone in resorting to such hyperbole. Astonishingly, the doctrine that only European unification can prevent an atavistic return to the horrors of “nationalism” (for which read Nazism) has long been and remains the received wisdom in German political circles.
It is, of course, nonsense. The notion that Germany, the most resolutely pacifist of the great powers, might be itching to revert to its militaristic Prussian past belongs in the realm of fantasy fiction. But not even Andrew Roberts’s The Aachen Memorandum or Robert Harris’s Fatherland (to cite two novels that imagine a post-war Europe ruled by Germany) could conceive of our present predicament.
What makes the crisis so intractable is that Germany, the only country that can bring about a solution, is prevented from doing so by its political culture – an elite locked into a version of history that bears little relation to reality.
The great post-war German chancellors – Konrad Adenauer, Ludwig Erhard, Willy Brandt, Helmut Schmidt, Helmut Kohl and now Angela Merkel – all believed that hyper-nationalism, exacerbated by hyper-inflation, was the cause of what the historian Friedrich Meinecke euphemistically called “the German catastrophe”.
You would need to be at least 100 years old to have a first-hand memory of the hyper-inflation that brought the Weimar Republic to its knees in 1923. But the folk memory certainly persists: the images of valueless paper money were seared on to the collective consciousness and reinforced by the Nazis in order to discredit Weimar democracy.
Adam Fergusson, in his classic account When Money Dies, correctly writes: “What really broke Germany was the constant taking of soft political options in respect of money.” That lesson certainly persists and is highly influential on Chancellor Merkel’s refusal to allow the European Central Bank to start printing trillions of euros to bail out the “Club Med” economies from their self-inflicted debt crisis. The German fear of inflationary soft options drove the Stability and Growth Pact, which was supposed to keep the eurozone on an even keel, but proved to be a dead letter because several members refused to adhere to it.
What foreigners forget, however, is that the Germans suffered the same inflationary ordeal again after the Second World War, when for three years packets of Marlboro cigarettes served as the only reliable currency in the Western zones of occupation. This second hyper-inflation is very much a living memory, but what most people remember about it is how it was brought to an end: with a new currency, the Deutschmark, which was launched by the economics wizard Ludwig Erhard against the wishes of the American, British and French occupiers – not to mention the Soviets, who saw it as an act of German revanchism. They weren’t entirely mistaken: long-term, the Communist East could not survive the introduction of a hard currency in the West.
Drastic, dramatic and dynamic, Erhard’s “currency reform” and its accompanying “bonfire of controls” were so successful that within a few years the “economic miracle” had enabled West Germany to leapfrog over Britain in exports, production and standard of living. With the Germans anchored in Nato, they could pursue their European destiny in the EEC, with the Deutschmark by far the strongest currency in the new trading bloc. Germany could atone for its past by playing the role of Europe’s central banker.
In German folk memory, the creation of the euro is seen as merely a grander version of the same story, only on a continental scale. Missing from this narrative, however, is the fact that the success of the Deutschmark always depended on patriotic pride: German money for the German people. It was the first step towards the reassertion of German national independence and was embraced by the people as such.
It was swiftly followed by the creation of the Federal Republic, the antithesis of Hitler’s “Führer-state”. The new republic gave birth to “constitutional patriotism”, a term coined not by conservatives but by a Marxist professor, Jürgen Habermas. Germans took pride in the iron financial discipline imposed by the Bundesbank and the rigorous rule of law imposed by the German Constitutional Court. The Germans, in short, became good Europeans by being good Germans. They were true to the national characteristics for which they are respected, and which can be summed up in Adenauer’s slogan: “No experiments!”
None of this applied to the euro. The creation of a single currency for 11 (now 17) nations was an experiment in post-nationalism. It was the riskiest experiment in European history, one that could only ever have been contemplated, let alone essayed, by the most insulated oligarchy in European history. In so far as it is backed by any lender of last resort, it is not a European institution, but the Bundesbank.
The euro, then, is actually very un-German. Yet the German political class has sworn allegiance. The firm of Merkel & Co is determined to keep the euro as a going concern because they have invested too much political as well as financial capital in this gimcrack scheme to admit their mistake.
Sooner or later, the lethal combination of free markets and a free press was bound to expose the euro as a confidence trick. Now that this has happened, the Germans are demanding that their leaders restore confidence in the currency. For the moment, their efforts are focused on preventing Italy and the other defaulters from leaving the eurozone. Such efforts look doomed to fail. Germans are used to bailing out their own eastern provinces, but they cannot do the same for half of Europe.
According to the historian Timothy Garton Ash, the talk in Berlin political circles is of a “German Europe”, fit to compete with China (and, I would add, a resurgent America). But Europe is not ready for a German makeover. Nor is this what most Germans really want. A majority of Germans (54 per cent) long for the return of the Deutschmark. Their allegiance is still to their own country and its institutions. They have no desire to run those of others.
A solution to the crisis begins to suggest itself. The centre cannot hold. Therefore Germany should offer its fellow member states in the eurozone a looser relationship that would allow national currencies to find their own value. Admitting that the euro has failed as a currency would not mean that “Europe” has failed too. It would be a long-overdue recognition not only of economic, but also of human, reality. The end of the euro need not mean the end of Europe.
In the next few days we shall discover whether Chancellor Merkel and her grizzled, tough-minded finance minister, Wolfgang Schäuble, are ready to face that reality. Unlike Berlusconi, they are not yet discredited in the eyes of their nation. That fate only awaits them if they delay much longer before accepting the inevitable.
Europe’s hit squad
12 November 2011
If you thought the EU couldn’t get any less democratic, meet the Frankfurt Group
The Old Opera House in Frankfurt — once Germany’s most beautiful postwar ruin and now its most stunning recreation — has become a symbol of European rebirth. And it was here, last month, that Angela Merkel and Nicolas Sarkozy met the EU’s bureaucratic elite in what would, in another era, be described as a putsch. They had grown tired of eurozone summits, with leaders flying here and there but getting nowhere. A smaller group needed to be formed, who would wield power firmly but informally. That evening, as they gathered to hear Claudio Abbado conduct the Mozart Orchestra of Bologna, a new EU hit squad was born.
As Silvio Berlusconi has now found out, this so-called Frankfurt Group means business. Only a few months ago, it would have been unthinkable that the head of one European government would try to destabilise or depose another. Now, two EU leaders have fallen in a week. As Sarkozy knows from recent experience, to enforce regime change one need only give a helping hand to the rebels.
The group cannot be accused of being secretive. At the G20 summit in Cannes, its officials walked around with lapel badges saying ‘Groupe de Francfort (GdF)’ and met four times. Britain was not included but the Foreign Office’s officials spoke as if they were in on the act. As one official put it: ‘We’re on our way to moving out Berlusconi.’
Such a statement may once have been seen as outrageous, but by last weekend it was undeniable that an operation to remove Berlusconi had begun. When Merkel and Sarkozy were asked if they had confidence in him, they rolled their eyes and gave each other wry smiles. The European Central Bank, which is also part of the Frankfurt Group, gave only minimal support to Italy — leaving the bond markets to do their worst to Berlusconi. The International Monetary Fund, whose new leader was also at the Opera house that night, made it clear that it would be sending its auditors to Rome on a regular basis to inspect the books. All this combined to send an unmistakable Old Europe message: we have ways of making you quit.
When that night in Frankfurt’s Alte Oper on 19 October was booked, no one was intending to form a new hit squad. The plan was to have just an ordinary taxpayer-funded extravaganza, a shindig to mark Jean-Claude Trichet’s retirement from the European Central Bank. Helmut Schmidt, the 92-year-old former chancellor of Germany who is now seen as a godfather of the European project, told the assembled dignitaries that ‘a crisis in the ability to act of the EU’s political bodies’ was ‘a much bigger danger for the future of Europe than over-indebtedness’. It was time to get tough.
When Merkel spoke, she admitted frustration with European summits and their cumbersome democratic mechanics. ‘The EU’s ability to act and room for manoeuvre has proven slow and complicated,’ she complained. ‘If we want to seize the crisis as an opportunity, we must be prepared to act more quickly and even in unconventional ways.’ Sarkozy arrived late, but just in time for the stitch-up of the decade.
Also in attendance was the new head of the ECB, Mario Draghi, an Italian with no love for Berlusconi. Then Christine Lagarde, the new (French) director of the International Monetary Fund, who is in charge of bailouts and can impose humiliating conditions (as she went on to do to Berlusconi). There was Jose Manuel Barroso, the increasingly thuggish European Commission president, and his economic sidekick Olli Rehn. The omnipresent Jean-Claude Juncker, Prime Minister of Luxembourg and head of the 17-nation eurozone group, was there with Herman Van Rompuy, who was elected EU president because he has no opinions on anything.
So the Frankfurt Group is, in effect, a merger between the EU hierarchy and German financial power: a kind of Brussels on the Rhine. It would not have been possible in the pre-crisis era when there were qualms about German might. Now the Germans are no longer apologetic. ‘The question of who could accept a German model has been settled by the market,’ said a German government spokesman recently. ‘We are really only talking about the details and the extent of the measures, not about their nature.’ This new, pugilistic tone is felt everywhere. Anonymous EU officials are now being quoted as saying things like: ‘Yes, wake up and smell the coffee. This is what you all signed up for.’
Poor old Mr Papandreou had provided target practice when he threatened to hold a referendum on the bailout. Only this summer, he had berated the EU for ‘indecisiveness and errors’. He found out just how decisive the slimmed-down Frankfurt Group could be when he was denied any bailout money, hastening his likely replacement with Lucas Papademos, a Frankfurt-trained former ECB official. Even Barroso had taken the remarkable step of destabilising Papandreou by calling for a coalition, breaking both protocol and the pretence that the EU Commission respected the sovereignty of its member states.
Berlusconi was a harder target. He has dodged enemies for most of his 17 years in politics, from the opposition to the Italian vice squad. Furthermore, Italy is not really bust. Strip out the debt interest, and its national books would not just be in balance but have one of the greatest surpluses in the eurozone. Its prosperous north is one of the richest parts of the Continent, and would be far richer if there were a lira to devalue and help exporters. Its households are savers, with an astonishing €8.6 trillion squirrelled away. Government debt, at 100 per cent of economic output, is high — but stable. Debt comes in many forms, and the average Italian owes half as much as the average Brit.
It is not at all clear who deemed Italy to be in crisis if the bond market charged above a supposedly fatal threshold of 7 per cent on its government debt. But one answer might lie in a declaration which Merkel made last year: ‘We must re-establish the primacy of politics over the market.’ Politicians have tried to do this, with little success, for generations. But it’s far easier now that the eurozone has created a giant apparatus whereby the strings of power can be pulled by a handful of people. The euro bailout fund, with its supposed €1 trillion of firepower, has just 15 staff. It might now be possible to wield immense power over a continent of nation states by assembling a few like-minded people in the back room of a Frankfurt opera house. And all in the name of European unity.
Democracy is viewed with caution — even distaste — by the Frankfurt Group, as are the markets. Juncker’s own views on pesky voters are famous since he phrased the problem of government thus: ‘We all know what to do, but we don’t know how to get re-elected once we have done it.’
We can now see a solution to the Juncker problem. You just enstool various leaders who were not properly elected in the first place and who won’t be seeking votes again. And have them do what you like.
But all this is, of course, fraught with danger. The idea of a prime minister chosen by foreign powerbrokers will be no more popular in Rome than it would be in Berlin. The idea of an ersatz politburo in Frankfurt will unnerve those EU members who lived under a real one in Moscow. Already, a third of Germans want out of the euro. That proportion will swell if Greece defaults within the euro, a trick that can only succeed with a massive compulsory foreign aid budget from Germany. Ireland’s finance minister is already speaking out against what he sees as a Franco-German coup, a democratically indefensible mutation of the European rulebook.
•••
David Cameron will know that, as Merkel said at the opera, there is opportunity in every crisis. If France and Germany have no respect for the EU’s rules, then why should Britain? If the Prime Minister were to declare that certain EU directives were suspended in Britain for an emergency period while it returned to growth, then what would the EU do? Through its EU membership, Britain already sends more foreign aid to the continent — £9 billion a year — than it does to the third world. Is the lesson of the Frankfurt Opera House not that the EU’s main paymasters can do what they like? George Osborne’s welcome belligerence at Tuesday’s euro summit, where he flatly rejected a financial transactions tax, should be the start of a new negotiating stance.
The EU which the Lib Dems so revere is now vanishing before our eyes. In its place comes a far more unequal union, with bullying lenders and enfeebled debtors. This illiberal, deeply undemocratic phase in the EU’s development fits a historical trend. In their definitive history of financial crises, This Time Is Different — Eight Centuries of Financial Folly, Carmen Reinhart and Ken Rogoff show that almost all modern downturns go through a cycle: financial crisis, followed by sovereign debt crisis, followed by ‘financial repression’. The last phase is always unpopular, and usually means severe cuts or finding ways to raid people’s savings — enacted by an undemocratic hit squad. This is what Sarkozy and Merkel and their allies in the bailout industry have now become.
Except this time it is different. When an Argentinian government imposes ‘financial repression’ on Argentinian people, it is unpopular enough, but tolerated. Should Germans impose such repression on thrifty Italian households, the political reaction may be incendiary.
Merkel and Sarkozy have both been fond of saying that they ‘will do everything necessary’ to save the eurozone. Neither Berlusconi or Papandreou would now doubt them. But a situation where even British officials talk about helping regime change in Italy is not one that can — or should — last long. Berlusconi’s demise marks the EU now entering its endgame. When empires collapse, they can do so very suddenly. David Cameron had better be ready.
Relations between Cameron and Merkel have improved since then after the prime minister indicated that Britain accepts the need for treaty change and will table relatively modest demands. The repatriation of social and employment laws will be for a later treaty negotiation.
But the general thrust of the speech by Barroso, who is legally obliged after all to act as the guardian of the EU treaties, was supportive of the British position: that treaty change must be agreed by the 27. The Anglophile former Portuguese prime minister, whose favourite English publication is the Spectator, said "a split union will not work".
Piris then spelt out the idea of a "two speed Europe":
Sources in Brussels say that France would like to press for a eurozone-only treaty to create new rules and institutions that would be less favourable to the Anglo-Saxon model of open trade. As I blogged recently, Germany likes Britain to be present for such negotiations because it shares some, if not all, of Britain's views on liberal trade. Britain would of course be excluded from a eurozone-only negotiation.
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
'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!
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
Photo: Reuters
3:15PM GMT 11 Nov 2011
"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.
Reports of plans for a break-up of the euro are premature
Very quickly, I have grave reservations about the Reuters story claiming that top German and French officials have had "intense consultations" on plans to reshape or "prune" the currency bloc, reducing it to a manageable core.
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
By Robert Winnett, and Nick Squires in Rome
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.
Protesters hold signs reading "Neither Tremonti nor Monti" during a protest in front of the Ministry of Finance in Rome on Friday. Photo: Reuters
By Jonathan Sibun, and Harry Wilson
9:13PM GMT 11 Nov 2011
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.
Protesters hold signs reading "Neither Tremonti nor Monti" during a protest in front of the Ministry of Finance in Rome on Friday. Photo: Reuters
By Jonathan Sibun, and Harry Wilson
9:13PM GMT 11 Nov 2011
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.
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
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.
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
By Damien McElroy, Foreign Affairs Correspondent
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.
Klaus Regling said the bailout fund was ready to step in to help Italy if necessary Photo: Bloomberg News
7:59AM GMT 11 Nov 2011
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.
"If a country comes and says it needs help straight away, then we are ready," he said
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