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Greece Bail-out a “one-off”, Says German Finance Minister: Europe Shivers Once More

Posted on the 28 July 2011 by Periscope @periscopepost
Greece bail-out a “one-off”, says German finance minister: Europe shivers once more

Greek flag and Cypriot flag. Photocredit: sciascia

Barely a week after European authorities united to rescue Greece from its economic woes with a €159 billion bailout, the German finance minister, Wolfgang Schaüble, warned that this was a “one-off”: Any future rescue plans for other indebted eurozone nations will take place under extremely tight conditions, overseen by the European Central Bank, and only when there are extraordinary circumstances in financial markets. Schaüble’s words echo the complaints of bailout-weary eurozone nations such as Germany, Holland and Finland, all of who are wondering when this eurozone meltdown is going to end and how much of their taxpayers’ money is going to be spent to fix it.

That’s bad news for Cyprus, which, heavily exposed to Greek debt, now threatens to become the fourth eurozone country that needs a bailout after credit ratings agency Moody’s downgraded its debt to just two levels above junk. It’s also worrying for investors – stock markets across Europe fell on Schaüble’s claims. Italian banks were among the hardest hit, while France remains vulnerable to “spillover” contagion from Italy and Spain. All this while Republicans and Democrats tussle over a deal to raise the country’s debt ceiling, making the threat of an American default on its debt all too real.

  • Germans want to help. Germany wants to bring “know-how and investment” to Greece, reported Rainer Buergin of Bloomberg. The “overall direction” of aid to the country has the “broad support” of the German coalition, Schaüble told Passauer Neve Presse, with investors in Greek government bonds making a “signifance contribution” to the aid package.

“The immediate crisis has passed, but it hasn’t fixed the underlying problems, and that’s why the market has been less than excited about holding euros. [America] will find a compromise that cuts spending and is unlikely to lead to a debt downgrade, and then the focus will once again turn to Europe,” analyst Michael Woolfolk of Bank of New York Mellon, told The Telegraph.

  • The bail-out will work.  Reuters reported that the head of the European Financial Stability Facility, Klaus Regling, has defended the bail-out package, saying that no taxpayers’ money had been lost. The agency quoted Regling: “No country accepts euro aid lightly. Because in return, the people of that country have to save rigorously for years and the government has to hand over some of its authority to the EU and the International Monetary Fund.” In future, Regling continued, the EFSF will not act without the consent of the European Central Bank and the national governments, and Germany will have a veto at all times. Greece will be able to reduce its debt ratio by “a good quarter” by 2020.
  • I’m not so sure it will, actually. It’s going to be a hot summer in Europe, said Ambrose Evans-Pritchard in The Daily Telegraph.  Schaüble’s comments, speaking as it seems to his fed-up countrymen, have led investors to suspect that he is “talking with a forked tongue, promising one thing in Brussels and another at home,” Evans-Pritchard reported. But he also spoke with Professor Nouriel Roubini from New York University, who said the European Financial Stability Facility (EFSF) package also doesn’t deal with the real problem: “For over a decade the peripheral states have lost competitiveness against China, Asia, Turkey and East Europe. Their products are labour-intensive and generate little added value. The sharp rise in the euro has ruined the competitiveness of these products. That is the nail in the coffin,” Roubini said.
  • How Europe will react.  The debt crisis and the credit ratings downgrades of several eurozone nations, said Emily Thompson at The Prague Post, has “spurred leaders to move for more unified fiscal policies and even to create a European credit rating agency slated to open next year, which they hope will counterbalance the irksome downgrades of US agencies.” Whether or not that will calm the markets or deal with the fundamental problem of eurozone debt remains to be seen.

More on the Eurozone crisis

  • Eurozone crisis averted?
  • Germany and France reach deal on debt
  • Is there a future for the Euro?

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