Euro Sovereign Debt Crisis Still Far From Resolved
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As everyone now knows, it’s not simply Greece – or Portugal or even Spain – that is under the gun as a result of the European debt crisis.
It’s the entire Eurozone – and hence European Union – experiment.
As everyone now knows, it’s not simply Greece – or Portugal or even Spain – that is under the gun as a result of the European debt crisis.
As everyone now knows, it’s not simply Greece – or Portugal or even Spain – that is under the gun as a result of the European debt crisis.
It’s the entire Eurozone – and hence European Union – experiment.
As everyone now knows, it’s not simply Greece – or Portugal or even Spain – that is under the gun as a result of the European debt crisis.
It’s the entire Eurozone – and hence European Union – experiment.
As we have said several times, the chief motive of establishing a continent-wide monetary system isn’t economic, but political:
to make sure Germany never again feels as isolated from the rest of Europe as it did from its founding as a modern state in 1871 to the disastrous aftermath of Nazism and World War II in 1945. [br]
It was thus not surprising that political leaders and central bankers on both sides of the Atlantic struggled over the weekend to persuade jittery investors that Europe would pull through its sovereign debt crisis.
Jean-Claude Trichet, president of the European Central Bank, said the bank’s decision last week to buy government bonds was a response to the worst economic crisis in Europe since World War II — possibly since World War I —
and did not signal the start of an expansive monetary policy, with the specter of years of high inflation …
As investors absorb the details — and the potential weaknesses — of the $1 trillion European rescue plan, US Treasury head Tim Geithner seemed to be trying to draw a sharp, if implicit, contrast
to remarks last week from another senior economic adviser to President Barack Obama, Paul A. Volcker.
Mr. Volcker, a former Federal Reserve chairman, startled some investors when he spoke of a possible “disintegration” of the euro zone —
a striking shift from his expressions of confidence of only two months earlier.
Partly because of Mr. Volcker’s comments, stock markets dropped on Friday and the euro fell to an 18-month low,
threatening to undermine extraordinary measures that the European Central Bank and European Union leaders took earlier in the week to halt a sell-off of European sovereign debt.
The markets’ loss of faith in the solvency of Greece, Portugal and even Spain had threatened not only public finances but also the health of the region’s banks.
The European Central Bank’s decision to buy bonds — just three days after Mr. Trichet said the idea was not on the table — [br]
cut the risk premium on government bonds issued by Greece, Portugal and other indebted European countries,
but it also generated fierce criticism that the central bank had succumbed to political pressure, according to this article in the New York Times.
The bank acted shortly after European Union political leaders committed almost $1 trillion to avert a debt default by Greece, Spain or other euro-zone countries …
Still, doubts about the underlying health of vulnerable European economies continued to well up.
Jürgen Stark, a member of the European Central Bank executive board who is the bank’s de facto chief economist,
was quoted on Sunday as saying that the European rescue plan had not resolved underlying debt problems.
“We bought time, not more than that,” he said in the Frankfurter Allgemeine Zeitung.
Financial markets fear that the austerity measures needed in Greece and some other countries to regain control of deficit-ridden budgets could derail economic recovery
and give rise to the sort of public anger that has already brought thousands of Greeks to the streets of Athens in deadly protests …
Mr. Stark, in his interview, said that the 16 countries that use the euro still needed to reduce their deficits and reform their economies.
The currency itself was not in danger, he said, “but in a critical situation.”
He urged European Union leaders to introduce new rules to promote stability and growth, and to impose automatic sanctions for countries not conforming to European Union debt rules.
Mr. Stark rejected suggestions that the European Central Bank had compromised its independence …
Mr. Stark refused to say how he had voted on the question of the bond purchases.
The bank reversed itself on buying bonds amid signs that the debt crisis was spreading to the banking system.
Some Europeans have complained that Germany’s reluctance to act sooner —
partly because of domestic political considerations in a country deeply weary of footing a disproportionate share of Europe’s bills —
had worsened the crisis.
