Economy > Currencies
> Euro, Eurozone crisis
21 June 2011
currency > euro
Britain into the euro
euro > Maastricht treaty UK
European Central Bank ECB
euro zone’s jobless rate
euro woes USA
on edge of financial collapse
Eurozone GDP > double-dip recession
economy > European debt crisis / eurozone crisis
eurozone crisis > Spain
Spain borrowing costs
Tracking Europe's Debt Crisis
fallout of the debt crisis
Europe’s financial crisis
“suicide by economic crisis”
U.S. Banks Tally Their Exposure to Europe’s
Debt Maelstrom January 29, 2012
be forced out of
leave the euro
exit from euro / exit from the single currency
euro zone breakup
eurozone crisis / euro zone crisis / euro
euro area / euro zone
all over the euro zone
European credit markets
European Union EU
rating firms > Moody’s Investors Service
rating firms > Standard & Poor’s
downgrade of debt ratings / rating downgrade
May 20, 2012
shun the dollar
to all-time low against euro
slip below euro
stock market > against the euro
A protesting officer from Greece's police
stands in a mock gallows
outside the Finance Ministry during an
anti-austerity protest in Athens on September 6, 2012.
More than 4,000 officers, chanting "thieves,
thieves’’ and carrying black flags
took part in the march against expected new
pay cuts in the crisis-hit country.
Thanassis Stavrakis/Associated Press
Boston Globe > Big Picture > Austerity
protests November 12, 2012
Boston Globe > Big Picture > Austerity protests
November 12, 2012
Matters of the economy are forefront in many
with economic issues dominating the recent American election
and the leadership change in China.
But in several countries in Europe,
economic debate is played out on the streets
with protests, petrol bombs, and strikes.
As the Eurozone struggles with the global financial crisis,
many member countries have turned
a series of spending cuts to health, education,
and other services and social programs.
Widespread protests against
these so-called austerity measures
have erupted in several countries
Gathered here are photographs
from the most heavily impacted nations in recent months,
including Spain, Greece, Portugal, and Italy
Crash of the Bumblebee
The New York Times
By PAUL KRUGMAN
Mario Draghi, the president of the European Central Bank, declared that his
institution “is ready to do whatever it takes to preserve the euro” — and
markets celebrated. In particular, interest rates on Spanish bonds fell sharply,
and stock markets soared everywhere.
But will the euro really be saved? That remains very much in doubt.
First of all, Europe’s single currency is a deeply flawed construction. And Mr.
Draghi, to his credit, actually acknowledged that. “The euro is like a
bumblebee,” he declared. “This is a mystery of nature because it shouldn’t fly
but instead it does. So the euro was a bumblebee that flew very well for several
years.” But now it has stopped flying. What can be done? The answer, he
suggested, is “to graduate to a real bee.”
Never mind the dubious biology, we get the point. In the long run, the euro will
be workable only if the European Union becomes much more like a unified country.
Consider, for example, the comparison between Spain and Florida. Both had huge
housing bubbles followed by dramatic crashes. But Spain is in crisis in a way
Florida isn’t. Why? Because when the slump hit, Florida could count on
Washington to keep paying for Social Security and Medicare, to guarantee the
solvency of its banks, to provide emergency aid to its unemployed, and more.
Spain had no such safety net, and in the long run, that has to be fixed.
But the creation of a United States of Europe won’t happen soon, if ever, while
the crisis of the euro is now. So what can be done to save the currency?
Well, why was the bumblebee able to fly for a while? Why did the euro seem to
work for its first eight or so years? Because the structure’s flaws were papered
over by a boom in southern Europe. The creation of the euro convinced investors
that it was safe to lend to countries like Greece and Spain that had previously
been considered risky, so money poured into these countries — mainly, by the
way, to finance private rather than public borrowing, with Greece the exception.
And for a while everyone was happy. In southern Europe, huge housing bubbles led
to a surge in construction employment, even as manufacturing became increasingly
uncompetitive. Meanwhile, the German economy, which had been languishing, perked
up thanks to rapidly rising exports to those bubble economies in the south. The
euro, it seemed, was working.
Then the bubbles burst. The construction jobs vanished, and unemployment in the
south soared; it’s now well above 20 percent in both Spain and Greece. At the
same time, revenues plunged; for the most part, big budget deficits are a
result, not a cause, of the crisis. Nonetheless, investors took flight, driving
up borrowing costs. In an attempt to soothe the financial markets, the afflicted
countries imposed harsh austerity measures that deepened their slumps. And the
euro as a whole is looking dangerously shaky.
What could turn this dangerous situation around? The answer is fairly clear:
policy makers would have to (a) do something to bring southern Europe’s
borrowing costs down and (b) give Europe’s debtors the same kind of opportunity
to export their way out of trouble that Germany received during the good years —
that is, create a boom in Germany that mirrors the boom in southern Europe
between 1999 and 2007. (And yes, that would mean a temporary rise in German
inflation.) The trouble is that Europe’s policy makers seem reluctant to do (a)
and completely unwilling to do (b).
In his remarks, Mr. Draghi — who I suspect understands all of this — basically
floated the idea of having the central bank buy lots of southern European bonds
to bring those borrowing costs down. But over the next two days German officials
appeared to throw cold water on that idea. In principle, Mr. Draghi could just
overrule German objections, but would he really be willing to do that?
And bond purchases are the easy part. The euro can’t be saved unless Germany is
also willing to accept substantially higher inflation over the next few years —
and so far I have seen no sign that German officials are even willing to discuss
this issue, let alone accept what’s necessary. Instead, they’re still insisting,
despite failure after failure — remember when Ireland was supposedly on the road
to rapid recovery? — that everything will be fine if debtors just stick to their
So could the euro be saved? Yes, probably. Should it be saved? Yes, even though
its creation now looks like a huge mistake. For failure of the euro wouldn’t
just cause economic disruption; it would be a giant blow to the wider European
project, which has brought peace and democracy to a continent with a tragic
But will it actually be saved? Despite Mr. Draghi’s show of determination, that
is, as I said, very much in doubt.
Crash of the Bumblebee, NYT, 29.7.2012,
Walls, New Despair
The New York Times
By FRANK BRUNI
ANA LUISA NOGUEIRA started out looking for love. More and more, she found hate.
Not hate, exactly, although that’s a word she sometimes uses for it. Sorrow.
Anger. A broken faith in a future with much to offer.
About four years ago, as a weekend hobby, she began wandering Lisbon to
photograph the clusters of hearts and proclamations of ardor — the endearing
graffiti of romance — that she saw on the city’s buildings. But about two years
ago, on those same buildings, she noticed new images and messages sprouting.
Some raged at the Portuguese government, which had saddled the country with
debt. Some railed at Germany, which held the cards and the purse strings. Some
were just scrawled wails of grief.
As Europe’s financial crisis deepened and Portugal reeled, Lisbon’s walls
talked. “Abandon all hope, you who still believe in me,” they said, in
Portuguese. “Portugal died. R.I.P.”
That epitaph was long gone by earlier this month, when I joined Nogueira, 37,
for one of her walks. But we found other writings, including several with the
same blunt refrain of hopelessness.
“You will never own a house in your life,” it said. Except it said this with an
unprintable adjective before “your life.” It said this with vitriol and
In the late 1990s and early 2000s, Portugal was a very different place, riding
high on the promise of the European Union, optimistic. So, to varying degrees,
were Greece, Spain, Ireland, Italy. Today they’re enduring a magnitude of
sacrifice, uncertainty and anxiety that trumps what America is going through,
not to belittle our hurt, and that serves as a warning and lesson.
What happens when the gap between what people thought lay ahead of them and what
they now confront is allowed to widen as quickly and as much as it has in these
countries? How do they adjust?
“They commit suicide in the public square,” said my friend Paulo Côrte-Real, an
economics professor in Lisbon, over dinner here. He was referring to
international headlines about a 77-year-old man who had recently shot himself in
front of the Greek Parliament and to “suicide by economic crisis,” a phrase that
several European newspapers now use. A story about the rise of such deaths
happened to appear in The Times the day after our dinner.
Maybe they flirt with far-right parties that scapegoat minorities and that
bemoan modernism and globalism. There have been reports and evidence of this in
Greece, Hungary, even France.
Maybe they take to the streets, loudly and repeatedly, as in Spain. Or maybe
they flee. Seemingly any young college graduate you talk to in Portugal — where
the unemployment rate is 15 percent overall but significantly higher for young
people, and where wages and benefits have plummeted — tells you about similarly
well-educated peers who have moved, with their skills and their ambitions,
elsewhere, leaving Portugal poorer in an additional way.
“The Netherlands, Germany, England, Canada, the U.S., Brazil, Angola, Denmark,”
said Joana Pacheco, 26, when I asked her to name places her friends had gone.
When I asked her how many of her friends she was talking about, she answered,
“All of them.”
She has an M.B.A. but works as a computer technician, making 800 euros (about
$1,000) a month, after taxes, in a job whose salary is trending downward. “Ten
years from now, we’ll be working for 300 euros,” she joked — sort of. She
recently applied for a position, any position, in a German municipality that
advertised jobs in a Portuguese newspaper. It was flooded with 8,000
applications, she said.
I met her through Nogueira, the photographer, whom I had met through a
Portuguese wine exporter I know. I had asked him, “What’s the mood like in
Portugal right now?”
He e-mailed me back a picture that Nogueira had just sent him: one of the darker
images she now sees and collects. On a blue doorway, in white, someone had
written, “Destiny is erased.”
Nogueira is a divorced mother of two girls, ages 8 and 10. She runs a private
kindergarten in Lisbon whose enrollment dropped to 85 students from 125 over the
last two years. Those departed children’s parents couldn’t afford it anymore.
Her income fell sharply as a result, and in order to pay for her own daughters’
private school, she had to move into a simpler apartment where she could live
rent-free, since her father owned it. But the bank could technically seize it at
any moment and probably will within two years, tops. The computer company over
which her father presided went bust, and he with it.
If forced to, she’ll put her daughters in public school, but she’s desperate to
keep them where they are, because the instruction in languages is so strong. “I
want them to learn English — better than me — and German,” she said. “I want
them to be able to leave.”
She doesn’t believe that Portugal will rebound anytime soon, in part because she
thinks its prosperity a decade ago was an illusion assisted by European Union
aid and extravagant, unnecessary infrastructure projects.
“Roads, roads, roads everywhere,” she said. “Portugal seemed perfect.” I
remembered having similar thoughts about Greece, which I covered from 2002 to
2004 for The Times. It had used European Union financial assistance and the
impetus of the looming Olympics to build, build, build.
And Greeks spent, spent, spent. Athens seemed to have three furniture stores and
two kitchen appliance retailers for each one in Italy, where I lived at the
Nogueira took me to see wall writings. They’re not everywhere, but she knows
where to find them.
We spotted a stencil of the Portuguese flag beside the Greek flag and, snug
above them, this message: “Figure out the differences.” Another stencil, stamped
on many buildings, said: “All systems have a dead end.”
Many of the epigrams we saw over two days — and many others that she showed me
pictures of — are cryptic that way, more emotional than specific. Some are
reproduced in a slide show that accompanies this column online.
“Destroy what destroys you.” “The debt isn’t yours.” “I want to be happy.”
And in English, for whatever reason: “Until debt tear us apart.” “They say jump,
you say how high.” “Don’t give up.”
Perhaps the saddest one I saw was only one word. “Liberdade,” meaning freedom.
But with an arrow pointing heavenward. As if to say there was freedom only in
About two months ago she persuaded a Lisbon souvenir store, Lisbon Lovers, to
turn her love photos — she still takes them, because romance hasn’t perished —
into a packet of 10 postcards.
She’d like to do something with the hate photos, too. But she senses that those
would be a much harder sell.
On Old Walls, New Despair, NYT, 21.4.2012,
Europe’s Economic Suicide
The New York Times
By PAUL KRUGMAN
The Times reported on an apparently growing phenomenon in Europe: “suicide by
economic crisis,” people taking their own lives in despair over unemployment and
business failure. It was a heartbreaking story. But I’m sure I wasn’t the only
reader, especially among economists, wondering if the larger story isn’t so much
about individuals as about the apparent determination of European leaders to
commit economic suicide for the Continent as a whole.
Just a few months ago I was feeling some hope about Europe. You may recall that
late last fall Europe appeared to be on the verge of financial meltdown; but the
European Central Bank, Europe’s counterpart to the Fed, came to the Continent’s
rescue. It offered Europe’s banks open-ended credit lines as long as they put up
the bonds of European governments as collateral; this directly supported the
banks and indirectly supported the governments, and put an end to the panic.
The question then was whether this brave and effective action would be the start
of a broader rethink, whether European leaders would use the breathing space the
bank had created to reconsider the policies that brought matters to a head in
the first place.
But they didn’t. Instead, they doubled down on their failed policies and ideas.
And it’s getting harder and harder to believe that anything will get them to
Consider the state of affairs in Spain, which is now the epicenter of the
crisis. Never mind talk of recession; Spain is in full-on depression, with the
overall unemployment rate at 23.6 percent, comparable to America at the depths
of the Great Depression, and the youth unemployment rate over 50 percent. This
can’t go on — and the realization that it can’t go on is what is sending Spanish
borrowing costs ever higher.
In a way, it doesn’t really matter how Spain got to this point — but for what
it’s worth, the Spanish story bears no resemblance to the morality tales so
popular among European officials, especially in Germany. Spain wasn’t fiscally
profligate — on the eve of the crisis it had low debt and a budget surplus.
Unfortunately, it also had an enormous housing bubble, a bubble made possible in
large part by huge loans from German banks to their Spanish counterparts. When
the bubble burst, the Spanish economy was left high and dry; Spain’s fiscal
problems are a consequence of its depression, not its cause.
Nonetheless, the prescription coming from Berlin and Frankfurt is, you guessed
it, even more fiscal austerity.
This is, not to mince words, just insane. Europe has had several years of
experience with harsh austerity programs, and the results are exactly what
students of history told you would happen: such programs push depressed
economies even deeper into depression. And because investors look at the state
of a nation’s economy when assessing its ability to repay debt, austerity
programs haven’t even worked as a way to reduce borrowing costs.
What is the alternative? Well, in the 1930s — an era that modern Europe is
starting to replicate in ever more faithful detail — the essential condition for
recovery was exit from the gold standard. The equivalent move now would be exit
from the euro, and restoration of national currencies. You may say that this is
inconceivable, and it would indeed be a hugely disruptive event both
economically and politically. But continuing on the present course, imposing
ever-harsher austerity on countries that are already suffering Depression-era
unemployment, is what’s truly inconceivable.
So if European leaders really wanted to save the euro they would be looking for
an alternative course. And the shape of such an alternative is actually fairly
clear. The Continent needs more expansionary monetary policies, in the form of a
willingness — an announced willingness — on the part of the European Central
Bank to accept somewhat higher inflation; it needs more expansionary fiscal
policies, in the form of budgets in Germany that offset austerity in Spain and
other troubled nations around the Continent’s periphery, rather than reinforcing
it. Even with such policies, the peripheral nations would face years of hard
times. But at least there would be some hope of recovery.
What we’re actually seeing, however, is complete inflexibility. In March,
European leaders signed a fiscal pact that in effect locks in fiscal austerity
as the response to any and all problems. Meanwhile, key officials at the central
bank are making a point of emphasizing the bank’s willingness to raise rates at
the slightest hint of higher inflation.
So it’s hard to avoid a sense of despair. Rather than admit that they’ve been
wrong, European leaders seem determined to drive their economy — and their
society — off a cliff. And the whole world will pay the price.
Europe’s Economic Suicide, NYT, 15.4.2012,
Europe’s Failed Course
The New York Times
euro-zone economies like Greece, Portugal, Spain and Italy cannot cut their way
back to growth. Demanding rigid austerity from them as the price of European
support has lengthened and deepened their recessions. It has made their debts
harder, not easier, to pay off.
This is not an issue of philosophical debate. The numbers are in.
As The Times’s Landon Thomas Jr. reported this week, Portugal has met every
demand from the European Union and the International Monetary Fund. It has cut
wages and pensions, slashed public spending and raised taxes. Those steps have
deepened its recession, making it even less able to repay its debts. When it
received a bailout last May, Portugal’s ratio of debt to gross domestic product
was 107 percent. By next year, it is expected to rise to 118 percent. That ratio
will continue to rise so long as the economy shrinks. That is, indeed, the very
definition of a vicious circle.
Meanwhile, shrinking demand and fears of a contagious collapse keep pushing more
European countries toward the danger zone of unsustainable debt.
Why are Europe’s leaders so determined to deny reality? Chancellor Angela Merkel
of Germany and President Nicolas Sarkozy of France, in particular, seem unable
to admit that they got this wrong. They are still captivated by the illogical
but seductive notion that every country can emulate Germany’s export-driven
model without the decades of public investment and artificially low exchange
rates that are crucial to Germany’s success.
Mrs. Merkel also seems determined to pander to the prejudices of German voters
who believe that suffering is the only way to purge Greece and other southern
European countries of their profligate ways.
There’s no question that Greece has behaved inexcusably, spending more than it
could afford, failing to collect taxes from some of its richest citizens and
fudging its books. And while we sympathize with Greek protests against excessive
austerity, we have no patience with politicians who continue to drag their feet
over pro-growth reforms and privatizations. But the cure is neither collective
punishment nor induced recession. Europe must be willing to help Greece grow out
of its problems — on the condition that Greek politicians finally commit
themselves to market reforms.
Under strong pressure from international investors, euro-zone leaders have
recently adjusted some of their policies. Europe’s central bank has injected
much needed liquidity into the Continent’s banking system. Plans are finally
under way to add money to a chronically underfinanced European Union bailout
fund. But until they abandon the mistaken belief that austerity is the way to
debt relief, even those steps won’t be enough.
With Greece rapidly approaching the day (probably next month) when it can no
longer pay government salaries and foreign creditors, Europe still has not
released needed bailout money. It is not clear whether Mrs. Merkel and Mr.
Sarkozy and others are playing chicken with Athens or think they could withstand
Greece defaulting and leaving the euro zone. The risks are enormous.
At a minimum, a Greek default would send damaging aftershocks rippling through
government finances and banks across Europe. The ideal and the practice of a
united Europe would suffer a major blow. Those are high prices for all of Europe
to pay for clinging to a failed idea.
Europe’s Failed Course, NYT, 17.2.2012,
The New York Times
By EDWIN M. TRUMAN
FOR the third time in a century, a bitter conflict fueled by historic grievances
has erupted in Europe, with the United States looking from afar and hoping not
to get involved. Of course, this is not being fought on the battlefields but in
the arcane arenas of international finance. But as in World War I, which
President Woodrow Wilson once dismissed as “a drunken brawl,” and in World War
II, which America formally stayed out of until Pearl Harbor, the crisis over the
euro will require further American involvement — whether we like it or not.
Currently, the United States is discouraging the International Monetary Fund and
its non-European members from promising additional financial assistance to
The American posture is understandable and, at one level, sensible. With our own
debt and deficit problems, we and other countries can be forgiven for feeling
that it not up to us to extricate Europe from its mistakes and excesses.
President Obama, facing a tough re-election fight, is hardly in a position to
offer financial aid to Europe. Just as Washington wants Europe to do more to
enhance its political and military security, so is it appropriate to demand that
Europe do more on its own with respect to its economic and financial security.
But policy passivity risks exacerbating the European crisis and its
macroeconomic effects. The United States must show more leadership. First, it
must be bolder and more public in setting conditions on Europe’s loan programs.
Then, if Europe finally responds convincingly, the United States should rally
the rest of the world in a supporting role.
For two years, Europe has dithered over creating a financial firewall to prevent
the financial meltdown’s spreading from Greece. Little has come of the
discussions. Europe now needs a financial safety net to rescue itself from a
self-made conflagration that threatens itself and the rest of the world.
As a measure of the consternation outside of Europe, the economic forecasts
released recently by the I.M.F. projected global growth this year at 1.2
percentage points lower than last spring, a deterioration that is largely
attributable to mismanagement of the euro crisis. No region of the world has
been spared. The loss in global output amounts to $1 trillion.
Two months ago, European leaders asked the I.M.F. and the rest of the world for
help, while pledging to make their own financial contribution, channeled through
the I.M.F. The United States does not need to put up money, but it has been slow
to respond positively. It is time for Washington to insist that I.M.F.
assistance be accompanied by conditions on economic and financial policies in
the euro area. There should be conditions attached not just to programs to
support Greece, Ireland, Portugal and potentially Italy and Spain but also to
euro-area policies more broadly because this is a euro-area crisis.
Four conditions are appropriate.
First, countries that can — that is, those where the ratio of government debt to
gross domestic product is 90 percent or less — should reverse their projected
budget tightening in 2012 and 2013. Those countries are Austria, Finland,
France, Slovenia — and, above all, Germany.
Second, the European Central Bank should lower its refinancing rate to 0.25
percent from 1 percent — an action that it has resisted because of an
unjustified fear of inflation.
Third, euro-area authorities should set aside at least $1 trillion for a
European financial safety net — a far larger amount than what has been publicly
discussed so far — to persuade markets to stop betting against debt markets of
Fourth, new loans from the euro area, channeled through the I.M.F back to the
euro area, should not be repaid until all existing I.M.F. loans to euro-area
countries have been entirely repaid. A change in this treatment is necessary
before China, the Persian Gulf countries and other potential contributors are
comfortable with throwing a lifeline to a region more prosperous than their own
If these four conditions are met, then the United States should drop its tacit
opposition to a proposal by Christine Lagarde, the managing director of the
I.M.F. and a former French finance minister, to raise $500 billion to support
Europe and actively encourage those countries with the political and financial
capacity to participate in the I.M.F. component of a European financial safety
Ironically, the I.M.F. will be turning to these emerging markets and developing
countries for help just as the euro debt crisis has delayed the timetable for
long-promised increases in voting power for those nations at the I.M.F. Given
the economic and financial damage inflicted by Europe on the rest of the world,
the United States must insist that these promises be strengthened, and speedily
a senior fellow at the Peterson Institute
for International Economics,
was director of international finance
at the Federal Reserve Board from 1977 to
and assistant secretary of the Treasury
for international affairs from 1998
He served as a counselor to the Treasury secretary in 2009.
Europe v. World, NYT, 14.2.2012,
Europe a Dirty Word?
The New York Times
By NICHOLAS D. KRISTOF
QUELLE horreur! One of the uglier revelations about President Obama emerging
from the Republican primaries is that he is trying to turn the United States
“He wants us to turn into a European-style welfare state,” warned Mitt Romney.
Countless versions of that horrific vision creep into Romney’s speeches,
suggesting that it would “poison the very spirit of America.”
Rick Santorum agrees, fretting that Obama is “trying to impose some sort of
European socialism on the United States.”
Who knew? Our president is plotting to turn us into Europeans. Imagine:
It’s a languid morning in Peoria, as a husband and wife are having breakfast.
“You’re sure you don’t want eggs and bacon?” the wife asks. “Oh, no, I prefer
these croissants,” the husband replies. “They have a lovely je ne sais quoi.”
He dips the croissant into his café au-lait and chews it with zest. “What do you
want to do this evening?” he asks. “Now that we’re only working 35 hours a week,
we have so much more time. You want to go to the new Bond film?”
“I’d rather go to a subtitled art film,” she suggests. “Or watch a pretentious
intellectual television show.”
“I hear Kim Kardashian is launching a reality TV show where she discusses
philosophy and global politics with Bernard-Henri Lévy,” he muses. “Oh, chérie,
that reminds me, let’s take advantage of the new pétanque channel and host a
“Parfait! And we must work out our vacation, now that we can take all of August
off. Instead of a weekend watching ultimate fighting in Vegas, let’s go on a
monthlong wine country tour.”
“How romantic!” he exclaims. “I used to worry about getting sick on the road.
But now that we have universal health care, no problem!”
Look out: another term of Obama, and we’ll all greet each other with double
pecks on the cheek.
Yet there is something serious going on. The Republican candidates unleash these
attacks on Obama because so many Americans have in mind a caricature of Europe
as an effete, failed socialist system. As Romney puts it: “Europe isn’t working
in Europe. It’s not going to work here.”
(Monsieur Romney is getting his comeuppance. Newt Gingrich has released an
attack ad, called “The French Connection,” showing clips of Romney speaking the
language of Paris. The scandalized narrator warns: “Just like John Kerry, he
But the basic notion of Europe as a failure is a dangerous misconception. The
reality is far more complicated.
What is true is that Europe is in an economic mess. Quite aside from the current
economic crisis, labor laws are often too rigid, and the effect has been to make
companies reluctant to hire in the first place. Unemployment rates therefore are
stubbornly high, especially for the young. And Europe’s welfare state has been
too generous, creating long-term budget problems as baby boomers retire.
“The dirty little secret of European governments was that we lived in a way we
couldn’t afford,” Sylvie Kauffmann, the editorial director of the newspaper Le
Monde, told me. “We lived beyond our means. We can’t live this lie anymore.”
Yet Kauffmann also notes that Europeans aren’t questioning the basic European
model of safety nets, and are aghast that Americans tolerate the way bad luck
sometimes leaves families homeless.
It’s absurd to dismiss Europe. After all, Norway is richer per capita than the
United States. Moreover, according to figures from the United States Bureau of
Labor Statistics, per-capita G.N.P. in France was 64 percent of the American
figure in 1960. That rose to 73 percent by 2010. Zut alors! The socialists
gained on us!
Meanwhile, they did it without breaking a sweat. The Bureau of Labor Statistics
says that employed Americans averaged 1,741 hours at work in 2010. In France,
the figure was 1,439 hours.
If Europe was as anticapitalist as Americans assume, its companies would be
collapsing. But there are 172 European corporations among the Fortune Global
500, compared with just 133 from the United States.
Europe gets some important things right. It has addressed energy issues and
climate change far more seriously than America has. It now has more economic
mobility than the United States, partly because of strong public education
systems. America used to have the highest proportion of college graduates in the
world; now France and Britain are both ahead of us.
Back in 1960, French life expectancy was just a few months longer than in the
United States, according to the Organization for Economic Cooperation and
Development. By 2009, the French were living almost three years longer than we
So it is worth acknowledging Europe’s labor rigidities and its lethargy in
resolving the current economic crisis. Its problems are real. But embracing a
caricature of Europe as a failure reveals our own ignorance — and chauvinism.
Why Is Europe a Dirty Word?, NYT, 1.14.2012,
Downgrade of Debt Ratings
Underscores Europe’s Woes
January 13, 2012
The New York Times
By LIZ ALDERMAN and RACHEL DONADIO
PARIS — Standard & Poor’s downgraded the credit ratings of
France, Italy and seven other European countries on Friday, a move that may have
more symbolic than fundamental financial impact but served as a reminder that
Europe’s economic woes were far from over.
Another memory jog came Friday from Greece, the original source of Europe’s debt
troubles. Talks hit a snag between the new Greek government and the banks and
other private investors that Athens hopes will agree to take losses on their
debt so that Greece can avoid a default.
Together, those developments underscore that even as Europe’s debt turmoil
enters its third year, no clear solutions are yet in sight — despite recent
signs that a new lending program by the European Central Bank might be easing
financial market pressures.
S.& P. warned in December that it might downgrade many of the 17 nations that
share the euro, largely because it said European politicians were moving too
slowly to strengthen the monetary union and because the euro zone’s problems
were propelling Europe toward its second recession in three years.
European politicians, in turn, criticized S.& P.’s downgrade plans as providing
no meaningful new information to investors but simply stoking a sense of crisis.
To some extent, the prospect of rating downgrades has already been priced into
recent bond auctions by Italy, Spain and other countries. Italy, in fact,
completed another fairly successful bond auction on Friday, even as rumors of
the downgrades had begun to swirl.
But the downgrades may now add to the borrowing costs of the nations affected.
Some commercial banks that are required to hold only the highest-rated
government securities will have to replace French bonds with other assets, like
bonds of Germany.
And the downgrades cannot help but add to the gloom pervading Europe’s economic
“Today’s rating actions are primarily driven by our assessment that the policy
initiatives that have been taken by European policy makers in recent weeks may
be insufficient to fully address ongoing systemic stresses in the euro zone,”
S.&. P said.
Finance Minister François Baroin of France said Friday that the loss of his
country’s pristine AAA rating, cut a notch to AA+, was “not good news” but was
“not a catastrophe.” He insisted that the country was headed in the right
direction and that no ratings agency would dictate the policies of France, which
has Europe’s second-biggest economy, behind Germany’s.
But the downgrades pose fresh challenges for Europe’s political leaders,
particularly President Nicolas Sarkozy of France, who is expected to run for
re-election this spring and had long cited his country’s AAA credit rating as a
badge of honor.
In August, when S.& P. cut the United States a notch from its top-rank AAA
rating, markets briefly plunged. But bond investors have continued to flock to
the debt of the United States, which as the world’s largest economy has retained
the perception of a financial safe haven. That has kept the United States
government’s interest rates at very low levels. But none of the countries
downgraded on Friday can necessarily count on such a reaction.
After Friday, the only euro zone nations retaining their top AAA ratings are
Germany, the Netherlands, Finland and Luxembourg.
Italy and Spain, which are considered the two big euro-zone economies most
vulnerable to an escalation of debt problems, both were downgraded two notches,
Italy to BBB+ and Spain to A.
“It will make it harder to erect firewalls around struggling euro zone economies
and convince investors that things are more sustainable,” said Simon Tilford,
the chief economist for the Center for European Reform in London.
Stocks were down broadly if not deeply in Europe and the United States on
Friday, as rumors of the downgrades preceded S.& P.’s announcement, which came
after the close of trading on Wall Street. And the euro fell to a 16-month low
against the dollar.
Just as significant as the ratings downgrades may be the suspension on Friday of
the creditor talks in Greece — whose debt S.& P. long ago gave junk status.
In October, the European Union pledged to write off 100 billion euros ($127.8
billion) of Greece’s debt if bondholders would agree to voluntarily accept 50
percent losses on their Greek holdings. Such an arrangement, known as
private-sector involvement, or P.S.I., has been pushed by Chancellor Angela
Merkel of Germany as a way of forcing banks, not only European taxpayers, to
foot the bill for bailing out Greece.
But talks broke down on Friday between Greece and the commercial banks.
“Discussions with Greece and the official sector are paused for reflection on
the benefits of a voluntary approach,” the Institute of International Finance,
which negotiates on behalf of the banks, said in a statement on Friday, after
its leader, Charles Dallara, left Athens.
“Unfortunately, despite the efforts of Greece’s leadership, the proposal put
forward,” the statement added, “has not produced a constructive consolidated
response by all parties.”
The reference to a “voluntary approach” might be a not-so-subtle message that if
Europe pushed too hard on this point, then the creditors could no longer accept
the agreement as a voluntary one. That is crucial, because an involuntary debt
revamping would be seen by creditors as a default — a step Greece and Europe are
trying hard to avoid.
If Greece defaults, it could set off the activation of credit default swaps — a
type of financial insurance. If the issuers of that insurance have to start
paying up, many analysts fear the same sort of falling dominoes of i.o.u.’s that
cascaded through the financial industry after the subprime mortgage market
collapsed in the United States in 2007 and 2008.
Talks are expected to resume next week. If Greece fails to persuade enough
bondholders to take voluntary losses, it may pass a law activating clauses in
the bonds that would force creditors to take losses.
“We should be ready, if we don’t have 100 percent participation and if Europe
doesn’t want to give us more money,” Christos Staikouras, a member of the Greek
Parliament from the center-right New Democracy opposition party and its economic
spokesman, said in an interview.
The tense negotiations over Greece’s debt come as the Greek government struggles
to find a consensus to pass the budget reforms demanded by its so-called troika
of lenders — the European Central Bank, European Union and International
Monetary Fund — in exchange for releasing the next installment of bailout money,
a 30 billion euro ($38.3 billion) payout scheduled to be released in March.
The Greek uncertainties only add to the regional doubt that helped set off the
S.& P. downgrades. Europe’s economy, having barely clawed its way out of a
recession three years ago, is again tipping into a new one. France, Spain,
Greece and Portugal are already in recessions, and Italy is expected to head
into one as a result of belt-tightening measures being pushed by its new prime
minister, Mario Monti.
Austria, the other country whose AAA rating was cut a notch on Friday, could be
in for trouble if the political turmoil in neighboring Hungary affects Austrian
banks, S.& P. said.
Even mighty Germany, with most of its neighbors in a downturn, is also expected
to slip into a shallow recession this year. On Friday, S.& P. kept Germany’s
ratings untouched, citing its continued competitiveness and financial rigor. But
it said it could lower Germany’s rating if its debt, now 80 percent of gross
domestic product, reached 100 percent.
David Jolly and Steven Erlanger
contributed reporting from Paris,
Landon Thomas Jr. from London
and Gaia Pianigiani from Rome.
Downgrade of Debt Ratings Underscores
Europe’s Woes, NYT, 13.1.2012,
Austerity Reigns Over Euro Zone
as Crisis Deepens
The New York Times
By NELSON D. SCHWARTZ
leaders braced their nations for a turbulent year, with their beleaguered
economies facing a threat on two fronts: widening deficits that force more
borrowing but increasing austerity measures that put growth further out of
Saying that Europe was facing its “harshest test in decades,” Chancellor Angela
Merkel of Germany warned on New Year’s Eve that “next year will no doubt be more
difficult than 2011” — a marked change in tone from a year ago, when she praised
Germans for “mastering the crisis as no other nation.”
Her blunt message was echoed in Italy, France and Greece, the epicenter of the
debt crisis, where Prime Minister Lucas Papademos asked for resolve in seeing
reforms through, “so that the sacrifices we have made up to now won’t be in
While the economic picture in the United States has brightened recently with
more upbeat employment figures, Europe remains mired in a slump. Most economists
are forecasting a recession for 2012, which will heighten the pressure
governments and financial institutions across the Continent are seeing.
Adding to the gloomy outlook is the prospect of a downgrade in France’s sterling
credit rating, a move that analysts say could happen early in the new year and
have wide-ranging consequences on efforts to stabilize Europe’s finances.
Despite criticism from many economists, though, most European governments are
sticking to austerity plans, rejecting the Keynesian approach of economic
stimulus favored by Washington after the financial crisis in 2008, in a bid to
show investors they are serious about fiscal discipline.
This cycle was evident on Friday, when Spain surprised observers by announcing a
larger-than-expected budget gap for 2011 even as the new conservative government
there laid out plans to increase property and income taxes in 2012.
Indeed, even in the country where the crisis began, Greece, the cycle of
spending cuts, tax increases and contraction has not resulted in a course
correction, and the same path now lies in store for much larger economies like
those of Italy and Spain.
“Every government in Europe with the exception of Germany is bending over
backwards to prove to the market that they won’t hesitate to do what it takes,”
said Charles Wyplosz, a professor of economics at the Graduate Institute of
Geneva. “We’re going straight into a wall with this kind of policy. It’s sheer
Rather than the austerity measures now being imposed, Mr. Wyplosz said he would
like to see governments halt the recent tax increases and spending reductions,
and instead cut consumption taxes in a bid to encourage consumer spending. More
belt-tightening, he said, increases the likelihood that Europe will see a “lost
decade” of economic torpor like Japan faced in the 1990s.
In fact, economists and strategists on both sides of the Atlantic have been
steadily ratcheting down their growth expectations for 2012.
“Europe is likely to have a meaningful recession in 2012,” said Tobias
Levkovich, Citigroup’s chief equity strategist. While Mr. Levkovich does not see
that as a significant threat to the bottom line of most American businesses — he
estimates that Europe accounts for about 8.5 percent of sales for the typical
company in the Standard & Poor’s 500-stock index — the psychological effects on
global markets will be magnified if political opposition to austerity increases.
“Powerful street protests could bring it back to the front pages,” he said.
“We’ve seen episodic crises in Europe over the past two years. It’s a recurring
event.” He expects Europe to remain a key worry for investors worldwide in 2012.
Neville Hill, head of European economics at Credit Suisse, expects gross
domestic product in the euro zone to shrink by 0.5 percent in 2012, with the
worst of the pain being felt in the first quarter. At the same time, borrowing
needs will remain elevated, with Italy and Spain planning to raise more than 100
billion euros in the first quarter alone.
“We shouldn’t underestimate the scale of the challenge the euro zone faces in
early 2012,” Mr. Hill said. “Italian and Spanish sovereign borrowers are at the
foot of the mountain, rather than the top. The first quarter is a crunch point.”
The Continent’s economic outlook will take center stage on Jan. 9, when Mrs.
Merkel and President Nicolas Sarkozy of France will discuss a new fiscal treaty
intended to impose stringent budget requirements on European Union nations. Then
on Jan. 30, European Union leaders will gather in Brussels to discuss ways to
There are some bright spots as Europe enters 2012. The recent drop of the euro
currency against foreign rivals like the yen and the dollar makes European
exports more competitive — a critical advantage for Germany, Europe’s largest
exporter and its largest economy. German unemployment now stands at 5.5 percent,
the lowest since German reunification.
About 15 percent of the euro zone’s gross domestic product comes from German
consumer spending, more than the contribution of Greece, Spain, Portugal and
Ireland combined, according to Mr. Hill.
The first test for the Continent will come this Thursday, when France is
expected to raise as much as 8 billion euros. On Jan. 12, Spain plans to auction
3 billion euros worth of euro debt, followed by Italy the next day with 9
billion euros. Along with governments tapping the market, European banks are
also expected to keep borrowing heavily as loans come due.
In the first quarter of 2012, about 215 billion euros worth of euro zone bank
debt must be rolled over, according to Julian Callow, chief European economist
Over all, Mr. Callow said, “the big picture is one of very restricted
visibility. The choice is whether you get a mild or more severe recession.”
Despite a move by the European Central Bank on Dec. 21 to provide 489 billion
euros in cheap, long-term credit to European banks, the central bank remains
reluctant to take more aggressive steps to become the lender of the last resort
as the Federal Reserve did in the wake of the financial crisis in the United
States in 2008.
In particular, the European bank has remained steadfast in its opposition to
buying up sovereign debt outright, for fear of encouraging a return to the kind
of deficit spending that got countries like Greece — which continues to rely on
bailout money — into trouble in the first place. But the bank’s move to inject
liquidity on Dec. 21 was seen as a kind of backdoor way of supporting government
bonds, since it is likely that a substantial portion of the money the banks
borrowed was quickly parked in sovereign bonds.
Rates have fallen since then, especially on short-term notes. At an auction
Wednesday of Italian six-month bills, the yield fell to 3.25 percent from a
record 6.5 percent yield a month earlier. But plenty of caution remains — a sale
by Italy Thursday of longer-term debt, including 10-year bonds, managed to raise
only 7 billion euros instead of the 8.5 billion euros that had been forecast.
“Europe is going about this the hard way,” Mr. Callow added. “It’s not really
using the central bank to alleviate these pressures in a dominant way.”
In addition, with governments in Spain, Portugal, Italy and Ireland planning
more austerity measures, Mr. Callow said, “this is likely to fuel growing
political and social tension. The markets will be closely watching the level of
Austerity Reigns Over Euro Zone as Crisis Deepens, NYT, 1.1.2012,
As Tension Rises in France,
Harsh Talk With Britain
December 16, 2011
The New York Times
By LIZ ALDERMAN
PARIS — To the long list of victims emerging from Europe’s
financial crisis, make room for a new one: the “Entente Cordiale” between
Britain and France.
A week after the British prime minister, David Cameron, refused to sign a
Europe-wide pact that leaders had hoped would stabilize the euro zone, a
cross-Channel spat has escalated into a full-blown war of words. Fears in Paris
have reached a fever pitch over the prospect that France is about to lose its
triple-A credit rating, the highest available.
President Nicolas Sarkozy started preparing the country this week for the
imminent loss of its gilt-edged status, though Fitch Ratings on Friday affirmed
France’s top credit rating while changing its outlook to negative.
A downgrade by Standard & Poor’s Ratings Services, which has put France on
review with a negative outlook, became more likely last week after a summit
meeting of European Union leaders was widely declared a flop.
But in the last two days, French officials have unleashed a diatribe suggesting
that Britain, not France, is far more deserving of a downgrade.
“At this point, one would prefer to be French than British on the economic
level,” the French finance minister, François Baroin, declared Friday.
The ruckus comes as Mr. Sarkozy prepares for a tense re-election campaign
heading into what promises to be a gloomy year economically for the country and
much of the rest of Europe.
Troubled by the crisis in the euro zone, France is probably already in a
recession, the government and the central bank warned this week, with a decline
in economic activity expected to continue at least through March. Business and
consumer sentiment have deteriorated, and unemployment is stuck at just below 10
Paris has embraced two austerity plans since the summer in a bid to reduce the
country’s chronic budget deficit and meet the demands from Berlin to set an
example for the rest of Europe to follow. Officials say those steps are also
necessary to prevent France’s international borrowing costs from rising to
unhealthy levels because of investors’ concern that France is losing the
capacity to foot a growing bill from the euro zone crisis.
The verbal onslaught seemed aimed at deflecting attention from those problems.
Within hours, headlines blared from British news Web sites taking exception to
the perceived French snub.
“The gall of Gaul!” read The Mail Online. An article in The Guardian accused
French politicians of descending “to the level of the school playground.”
Both countries are in poor economic shape. While the French are not suffering
anything like the distress being felt in Greece, Portugal and Ireland — which
cannot pay their bills without help from the European Union and the
International Monetary Fund — the French government is not immune to speculators
who see its rising debt levels as making it vulnerable to attacks in the bond
France’s debt as a percentage of gross domestic product was 82.3 percent in
2010, a figure that is expected to rise in the coming years even after it
tightens its belt. Britain’s debt was 75 percent of its G.D.P. and also rising
fast despite a stringent austerity program that is, at least for now, only
adding to the country’s economic woes.
In France, the budget deficit was 7.1 percent of G.D.P. last year. Mr. Sarkozy
has pledged to reduce it to 3 percent by 2013, partly through higher taxes, but
he has been reluctant to spell out which social programs may have to be cut as
well, out of fear of further alienating already disenchanted voters.
A looming recession is making that fiscal dilemma even worse by adding to social
costs and reducing tax revenue.
“It is very bad news for people, because it means the unemployment rate will
increase as more firms will have to fire people or go bankrupt in the private
sector,” said Jean-Paul Fitoussi, a professor of economics at L’Institut
d’Études Politiques in Paris. “It’s also bad news for politicians. They are in a
kind of a trap because they have to say to the people that there is nothing they
can do for them.”
As he walked to his job in an affluent suburb of Paris, Steve Kamguea, 22, an
entry-level banker at AlterValor Finances, said he saw little hope for a revival
of economic growth in France.
“With the problems in the euro zone hitting us, people are anxious about what
will happen in the future,” Mr. Kamguea said. “Purchasing power is already low,
and it’s hard to get by,” he added, shielding his face from a driving cold rain.
“Many people don’t know if they can find a job, and if they do, how much it will
The prospect of losing France’s sterling credit rating may throw more fuel on
the fire. Both Standard & Poor’s and Moody’s said they would review all European
Union countries for a possible downgrade soon after last week’s summit meeting.
On Friday, Fitch left France off a list of six euro zone countries that it
warned could be downgraded soon. The agency named Belgium, Cyprus, Ireland,
Italy, Spain and Slovenia.
But Fitch, in a separate statement reaffirming France’s AAA rating, revised its
outlook on long-term debt to negative from stable. It suggested that France
could lose the top rating over the next two years, saying it was the most
exposed of other euro countries to a further intensification of the crisis.
As for last week’s euro crisis summit and actions by the European Central Bank
to ease a banking credit crunch, Fitch said the commitments “were not sufficient
to put in place a fully credible financial firewall to prevent a self-fulfilling
liquidity and even solvency crisis for some non-AAA euro area sovereigns. In the
absence of a comprehensive solution, the euro zone crisis will persist and
likely be punctuated by episodes of severe financial market volatility.”
In the six-country announcement, Fitch was even more severe, concluding that
after the summit meeting, “a ‘comprehensive solution’ to the euro zone crisis
was technically and politically beyond reach.”
Also Friday, Moody’s Investors Service downgraded Belgium by two notches to Aa1
with a negative outlook.
Because a potential credit downgrade has been widely telegraphed, most French
officials do not expect significant damage. Many cite the one-notch downgrade
S.& P. made to the United States’ AAA credit rating this summer, saying the move
did not stop investors from flocking to United States Treasury securities.
In Europe, “if everyone is downgraded at the same time, it may be a nonevent,”
said one high-ranking French finance official, who spoke on condition of
anonymity. In any case, the official added, French debt, and that of most other
euro zone governments, is already trading in financial markets as if the
downgrade had already happened.
A senior French banking official insisted that a downgrade would not affect the
French banking industry nearly as much as new regulatory requirements that banks
raise tens of billions of euros in new capital to help guard against a further
worsening of the debt crisis in the euro zone.
Some banks in France, Italy, Spain and even Germany have already started to pull
back on lending to consumers and businesses, analysts say. A number of European
banks are planning to sell assets to raise fresh capital.
Those issues are probably far more worrisome than the prospect of a credit
downgrade, but that has not stopped the rating question from infiltrating the
national psyche and dominating discussions of public affairs. It has even hit
the streets. “France will lose its Triple-A,” lamented a recent scrawl of
graffiti on the side of a commercial building in the chic Marais quarter.
Despite the growing nervousness, the high-ranking French official insisted
Friday that France was not calling on the ratings agencies to actually pull down
Britain’s own triple-A rating. “That would be stupid,” he said.
The message, the official added, was more to tell the ratings agencies that
there was “no ground to downgrade France, but if a downgrade does happen, there
are other countries that should be in the same spot.”
That did little to placate Britain’s political establishment. Nick Clegg,
Britain’s deputy prime minister, telephoned Prime Minister François Fillon of
France on Friday to object to France’s criticism.
Mr. Fillon “made clear it had not been his intention to call into question the
U.K.’s rating but to highlight that ratings agencies appeared more focused on
economic governance than deficit levels,” Mr. Clegg’s office said.
Mr. Clegg accepted the explanation but had a blunt reply of his own. “Recent
remarks from members of the French government about the U.K. economy were simply
unacceptable,” Mr. Clegg told Mr. Fillon, according to the statement. “Steps
should be taken to calm the rhetoric.”
As Tension Rises in France, Harsh Talk With
Britain, NYT, 16.12.2011,
to Save Euro May Split Europe
The New York Times
By STEVEN ERLANGER and STEPHEN CASTLE
European leaders, meeting until the early hours of Friday, agreed to sign an
intergovernmental treaty that would require them to enforce stricter fiscal and
financial discipline in their future budgets. But efforts to get unanimity among
the 27 members of the European Union, as desired by Germany, failed as Britain
refused to go along.
In a day of historic, seemingly tectonic shifts in the architecture of Europe,
all 17 members of the European Union that use the euro agreed to the new treaty,
along with six other countries that wish to join the currency union eventually.
Twenty years after the Maastricht Treaty, which was designed not just to
integrate Europe but to contain the might of a united Germany, Berlin
effectively united Europe under its control, with Britain all but shut out.
Though not a perfect solution, because it could be seen as institutionalizing a
two-speed Europe, the intergovernmental pact could be ratified much more quickly
by parliaments than a full treaty amendment. Crucially, the deal was welcomed
immediately by the new head of the European Central Bank, Mario Draghi.
“It is a very good outcome for euro area members and it’s going to be the basis
for a good fiscal compact and more disciplined economic policy in euro area
countries,” Mr. Draghi said early Friday morning.
The support of Mr. Draghi and the bank to continue to buy the bonds of troubled
large countries like Italy and Spain is crucial to buy time for their economic
adjustment and restructuring, to reduce their debt and avoid a collapse of the
The outcome was a significant defeat for David Cameron, the British prime
minister, who had sought assurances to protect Britain’s financial services
sector in exchange for doing a deal. Mr. Sarkozy said that “David Cameron
requested something we all considered unacceptable, a protocol in the treaty
allowing the U.K. to be exempted for a certain number of financial regulations.”
Mr. Cameron said, “What was on offer wasn’t in British interests, so I didn’t
agree to it.” He conceded that there were risks with others going ahead to form
a separate treaty, but added, “We will insist that the E.U. institutions, the
court and the Commission work for all 27 nations of the E.U.”
The prime minister seemed to be betting that his unhappy coalition partners, the
Liberal Democrats, would not bolt over the issue, and that calculation seemed to
be right. On Friday, the party’s leader, Nick Clegg, said that as much as he
regretted the turn of events, Mr. Cameron’s demands had been “modest and
The European Council president, Herman Van Rompuy, said that in addition, the
leaders agreed to provide an additional 200 billion euros to the International
Monetary Fund to help increase a “firewall” of money in European bailout funds
to help cover Italy and Spain. He also said a permanent 500 billion euro
European Stability Mechanism would be put into effect a year early, by July
2012, and for a year, would run alongside the existing and temporary 440 billion
euro European Financial Stability Facility, thus also increasing funds for the
The leaders also agreed that private sector lenders to euro zone nations would
not automatically face losses, as had been the plan in the event of another
future bailout. When Greece’s debt was finally restructured, the private sector
suffered, making investors more anxious about other vulnerable economies.
Mr. Sarkozy said that the institutions of the European Union would be able to
police the new pact, though Britain may dispute that.
Chancellor Angela Merkel of Germany, who pressed hard for a treaty that would
codify and enforce debt limits and central oversight of national budgets, said
the decisions made here will result in increased credibility for the euro zone.
“I have always said the 17 states of the euro zone need to win back
credibility,” she said. “And I think that this can happen, will happen, with
European financial markets strengthened mildly on word of the agreement. The
Euro Stoxx 50 index, a barometer of euro zone blue chips, gained 1.5 percent,
while broader barometers rose slightly, and stocks rose in early United States
trading as well. The euro’s value strengthened to $1.3369, up from $1.3338 on
Thursday. In the bond market, the borrowing costs of the euro region’s two most
closely watched debt-ridden economies, Italy and Spain, were little changed.
President Obama said on Thursday that the European leaders’ efforts to reach a
long-term “fiscal compact where everybody’s playing by the same rules” were “all
for the good.” Yet he added, “But there’s a short-term crisis that has to be
resolved to make sure that markets have confidence that Europe stands behind the
The best hope for providing that shot of confidence has been seen as the
European Central Bank. But the bank’s president, Mr. Draghi, at a news
conference in Frankfurt on Thursday, seemed to back away from signals he sent
last week that a grand bailout bargain might be in the works — a big infusion
from the central bank in exchange for a commitment to greater fiscal discipline
from the European heads of state.
On Thursday, Mr. Draghi said that he was “surprised” that a speech he made last
week had been widely interpreted as meaning the central bank stood ready to
shore up weak European Union members like Italy and Spain by buying many more of
their bonds — or to possibly work in concert with the International Monetary
Fund. He played down the I.M.F. idea Thursday as too “legally complicated” and
said it might violate the spirit of the euro treaty.
Many analysts were stunned by what appeared to be Mr. Draghi’s turnaround.
“While Draghi had opened the door for more E.C.B. support last week, he closed
it again today,” Carsten Brzeski, an economist at the Dutch bank ING, wrote in a
note to clients. “According to Draghi, it was up to politicians to solve the
For now, Mr. Draghi appeared to have left the subject of government bailouts to
the heads of state, while focusing the European Central Bank’s efforts on the
less controversial business of keeping money flowing through commercial banks.
The main step the central bank took Thursday, which buoyed stock markets before
Mr. Draghi held his news conference, was to cut its main interest rate to 1
percent, from 1.25 percent. That returned the rate to the record low level that
had prevailed from 2009 until April. Mr. Draghi did not rule out the possibility
that the rate could go even lower.
The central bank also announced additional measures to aid euro zone banks
suffering from a dearth of the short-term lending and to avert a credit squeeze.
The European Central Bank said it would start giving commercial banks loans for
three years, compared with a maximum of about one year previously. Banks will be
able to borrow as much as they want at the benchmark interest rate.
They must provide collateral, but the central bank on Thursday also broadened
the range of securities it accepts, which will help banks that have large
amounts of assets that are hard to sell. The central bank also eased its
requirements for reserves that banks must maintain, which frees more cash.
In a sign of how badly banks need the money, 34 institutions took advantage of a
new lower interest rate offered by the European Central Bank in conjunction with
other central banks for three-month loans denominated in dollars.
Earlier Thursday, the Bank of England held its benchmark rate steady at a record
low 0.5 percent, after the bank’s governor warned of growing risks for Britain’s
economy from the euro area. Mr. Draghi, who took over at the European Central
Bank from Jean-Claude Trichet on Nov. 1, has wasted little time reversing rate
increases that Mr. Trichet oversaw in April and July. Those increases were
widely criticized as an overreaction to tentative signs of inflation and may
have helped hasten a widespread economic slowdown in Europe.
The economy of the 17 countries in the euro currency union is almost stagnant,
growing just 0.2 percent in the third quarter, with unemployment at 10.3
percent. Economists expect the euro zone economy to slip into recession early
next year if it has not happened already. Declining output makes the debt crisis
even worse by cutting tax receipts.
The E.C.B. lowered its growth projections Thursday, saying that output could
fall as much as 0.4 percent next year.
Lower interest rates will be particularly welcome in countries like Portugal and
Italy, where the debt crisis has pushed up interest rates and made it harder for
businesses to get loans. And the cuts will provide immediate relief to the many
homeowners in Ireland and other euro countries who have variable-rate mortgages
tied to the central bank’s rate.
But many economists continue to argue that ultimately the European Central Bank
will have to intervene more aggressively in the region’s government bond
markets, to prevent borrowing costs for Italy and other countries from becoming
so high that they are unable to refinance their debt.
contributed reporting from Frankfurt,
Landler from Washington.
A Treaty to Save Euro May Split Europe, NYT, 9.12.2011,
UK isolation grows
as three more countries
reconsider eurozone treaty
The 23 EU countries ignoring the UK veto
may be joined
by Hungary, Sweden
and the Czech Republic,
leaving Britain alone
Friday 9 December 2011
Ian Traynor, Nicholas Watt and David Gow in Brussels
This article was published on guardian.co.uk
at 12.51 GMT
on Friday 9 December 2011.
It was last modified at 15.26 GMT
on Friday 9 December 2011.
The sense of unprecedented isolation afflicting Britain in
Europe has been reinforced in Brussels after Hungary joined Sweden and the Czech
Republic in reconsidering whether to take part in a new pact aimed at rescuing
Britain parted ways with the rest of Europe earlier on Friday morning when David
Cameron dramatically wielded his veto to block Germany's drive to reopen the
Lisbon treaty in an attempt to rescue the single currency.
Initially 23 of the 27 EU countries said they would ignore the British veto and
negotiate a new pact outside the treaty. Later the other three waverers said
they would take the agreement to their own parliaments, leaving the UK on its
The prime minister's unexpected move was seen as a watershed in Britain's
fractious membership of the EU. He insisted on securing concessions on and
exemptions from EU financial markets regulation as the price of his assent to
the German-led euro salvation blueprint. The others balked, accusing Cameron of
putting Britain's perceived interests ahead of resolving the EU's worst crisis.
The prime minister blocked the accord, meaning that Britain is on its own while
Cameron has failed to secure the concessions for Britain's strong financial
services sector. In one of the most significant developments in Britain's
38-year membership of the EU, the British prime minister said early on Friday
morning he could not allow a "treaty within a treaty" that would undermine the
UK's position in the single market.
Cameron's blocking tactics frustrated the German chancellor Angela Merkel's
plans to secure a new punitive rulebook for the single currency by anchoring it
in the Lisbon treaty. Plan B is to create a "fiscal compact" among a coalition
of the willing – probably everyone but Britain – with quasi-automatic penalties
for countries breaking the single currency rules and stronger powers of
intervention for European institutions policing the pact.
Britain, however, is also likely to contest the new architecture, arguing that
bodies like the European commission responsible to all 27 member states should
not be given a role to police the euro.
The outcome on Friday morning, following nine hours of negotiation through the
night, was a setback for Merkel, perhaps a disaster for Britain, and a partial
victory for Nicolas Sarkozy of France, who had been pressing for an
inter-governmental agreement among the 17 members of the eurozone to underpin
tough new fiscal rules for the single currency.
"We could not accept this," he said of Cameron's demands.
But many other countries opposed the Merkel plan to reopen the Lisbon treaty and
will not be disappointed that the German scheme has failed. Merkel nonetheless
stressed that the accord would stabilise the euro. "I have always said, the 17
states of the eurogroup have to regain credibility," she said. "And I believe
with today's decisions this can and will be achieved."
Cameron wielded the British veto in the early hours of the morning after France
succeeded in blocking a series of safeguards demanded by Britain to protect the
City of London. Cameron had demanded that:
• Any transfer of power from a national regulator to an EU regulator on
financial services would be subject to a veto.
• Banks should face a higher capital requirement.
• The European Banking Authority should remain in London. There were suggestions
that it might be consolidated in the European Security and Markets Authority in
• The European Central Bank be rebuffed in its attempts to rule that
euro-denominated transactions take place within the eurozone.
Sarkozy rejected the demands out of hand.
Cameron defended his decision to wield the British veto on the grounds that
eurozone members could have used the institutions of the EU to undermine
Britain's interests in the single market without his safeguards. Speaking at
6.19am local time, he said: "I said before I came to Brussels that if I couldn't
get adequate safeguards for Britain in a new European treaty then I wouldn't
agree to it. What is on offer isn't in Britain's interests so I didn't agree to
"Of course we want the eurozone countries to come together and to solve their
problems. But we should only allow that to happen inside the European Union
treaties if there are proper protections for the single market and for other key
British interests. Without those safeguards it is better not to have a treaty
within a treaty but to have those countries make their arrangements separately."
Cameron acknowledged there were risks in striking out alone. But he said Britain
would protect its position by insisting that the institutions of the EU could
not be used to enforce the new fiscal rules.
"While there were always dangers of agreeing a treaty within a treaty, there are
also risks with others going off and forming a separate treaty. So we will
insist that the EU institutions – the court, the commission – that they work for
all 27 nations of the EU. Indeed those institutions are established by the
treaty and that treaty is still protected."
Cameron indicated that Britain may go further and block the use of EU
institutions if eurozone countries club together to shape financial regulations
and labour laws.
The decision by Cameron will transform Britain's relations within the EU. Other
projects, such as the euro and the creation of the passport-free Schengen travel
area, have gone ahead without British involvement. But it is the first time
since Britain joined in 1973 that a treaty that strikes at the heart of the
workings of the EU will be agreed without a British signature. Britain signed
the 1991 Maastricht treaty after winning an opt-out on the single currency and
the social chapter.
Cameron will be able to tell Eurosceptic backbenchers he refused to sign a
treaty that would have undermined British interests. But some Eurosceptics may
say the new treaty marks a major change in the EU and that the British people
should be consulted in a referendum.
Sources in Brussels say Cameron is playing a "dangerous game" because financial
service regulations are decided by the system of qualified majority voting in
which Britain does not have a veto. Britain can form a "blocking minority" at
the moment to stop harmful legislation. But this will shrink as more countries
join the euro.
The summit also agreed that:
• Eurozone countries will provide up to €200bn in extra resources to the
International Monetary Fund to help countries in difficulty.
• The eurozone's two bailout funds, the European Stability Mechanism (ESM) and
the European Financial Stability Facility (EFSF), will be managed by the
European Central Bank.
UK isolation grows as three more countries
reconsider eurozone treaty,
as a Bystander to Europe’s Crisis
December 7, 2011
The New York Times
By SARAH LYALL and STEPHEN CASTLE
LONDON — No matter what happens at the European summit meeting
on the euro in Brussels that begins Thursday, Britain is sure to lose.
There is looming recognition at 10 Downing Street that if the euro falls,
Britain will sink along with everyone else. But if Europe manages to pull itself
together by forging closer unity among the 17 countries that use the euro, then
Britain faces being ever more marginalized in decisions on the Continent.
Many Europeans have been irritated by British Conservatives’ quiet satisfaction
throughout the crisis with the decision not to join the euro (the United Kingdom
ostentatiously kept its currency, the pound), particularly when juxtaposed with
the panic over Britain’s inability to have any significant impact on Europe’s
biggest crisis since the end of the cold war.
“Germany is the unquestioned leader of Europe,” said Charles Grant, director of
the Center for European Reform. “France is definitely subordinate to Germany,
and Britain has less influence than at any time I can recall.”
Of particular concern here is the health of Britain’s financial industry, a
vital economic engine at a time of slowing growth and deep cuts in government
spending, which is seen to be vulnerable to new European regulations that could
hurt British competitiveness in global markets.
Despite all that is at stake, Prime Minister David Cameron’s coalition
government looks doomed to be cast in the role of impotent bystander, torn
between anti-Europe forces and European leaders’ moves toward greater fiscal
integration on the Continent — with or without Britain.
On Wednesday, Mr. Cameron told a fractious Parliament that his main goal in
Brussels was to “seek safeguards for Britain” and “protect our own national
interest” by resisting measures like a proposed financial transaction tax. But
such Britain-centric rhetoric has annoyed the brokers of Europe’s future,
Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France, who
are trying to find a way to save the euro while imposing legally binding fiscal
discipline on the Continent’s floundering southern economies.
They have not been shy about expressing their frustration. Just six weeks ago,
after Mr. Cameron tried to inject himself into talks about the euro, Mr. Sarkozy
said bluntly, “You have lost a good opportunity to shut up.” He later added: “We
are sick of you criticizing us and telling us what to do. You say you hate the
euro and now you want to interfere in our meetings.”
Steven Fielding, director of the Center for British Politics at the University
of Nottingham, said: “Cameron might sound off to look good to his backbenchers,
but in Europe, he hasn’t got much to negotiate with. It’s been made clear that
France and Germany can do whatever the hell they like and Britain can say yes or
no, but it doesn’t matter, since they’ll do it anyway.”
The paradox of this is that plans for tighter integration among the 17 euro zone
countries are at the same time destined to create greater divisions within
Europe — divisions between countries that use the euro and those that do not,
and divisions within the euro zone itself, depending on the health and
importance of the various economies. A two-, three-, four- and even five-tier
Europe could possibly emerge.
“The markets have defined who are the good guys and who are the bad guys, and
their interest rates are in many ways the manifestation of this,” said Alexander
Stubb, Finland’s minister for European affairs. “When we look at future E.U.
rules, it is the triple-A countries that are running the show.”
The political price of Britain’s self-proclaimed exceptionalism was made clear
with a vengeance to Mr. Cameron on Wednesday, when he was pounded from all sides
in a raucous session in the House of Commons. Fractious Europe-hating
Conservative backbenchers called for him to stand firm on Europe, to “show
bulldog spirit,” in a “resolute and uncompromising defense of British national
interests,” as one legislator, Andrew Rosindell, put it.
Trying to placate them, the prime minister pledged not to sign anything that did
not contain “British safeguards.”
Meanwhile, should the Europeans in the euro zone “go ahead with a separate
treaty” that leaves out the noneuro countries, Mr. Cameron explained, “then
clearly that is not a treaty that Britain would be signing or would be
amending.” However, he said, he would still retain “some leverage” over the
“The more the euro zone countries ask for, the more we will ask for in return,”
he said. But France and Germany have already made it abundantly clear that they
will go ahead with their plans for the euro zone without regard to the needs or
interests of Britain.
The explosive debate in Britain, while never welcome, comes at an unusually
inopportune time for Mr. Cameron. The so-called special relationship with the
United States is not looking all that special right now, and enormous cuts in
defense spending are making it hard for the British military to maintain its
status as America’s right hand.
The austerity budget is fraying at the edges, amid strikes and protests over
layoffs and rising fees. Growth has been slowing, despite Mr. Cameron’s
insistence that businesses would pick up the pace when it became clear that the
government’s finances were sound. And now Britain looks to be in an unusually
poor position to defend its interests in Europe.
Members of the Labour opposition lost no time exploiting what they saw as Mr.
Cameron’s weakness on the issue.
“Six weeks ago, he was promising his backbenchers a handbagging for Europe, and
now he’s just reduced to hand-wringing,” the Labour leader, Ed Miliband, told
Parliament, as his party members whooped their approval. “The problem for
Britain is that at that most important European summit for a generation, that
matters hugely for businesses up and down the country, the prime minister is
simply left on the sidelines.”
Even more worryingly for the government, several prominent Conservatives,
including the cabinet minister in charge of Northern Ireland, Owen Paterson,
broke ranks with the party line and said flatly that Mr. Cameron should make
good on what they called his promise to hold a national referendum on any
proposed European treaty changes. With much of Britain in the anti-Europe camp,
the no side would surely prevail in such a vote.
Mrs. Merkel has said that she would like any treaty changes to be approved by
the entire European Union, so in theory Britain could exercise a veto. But
Germany and France have also said they will make changes in the way the euro
zone alone operates, if that is the only way to defend the common currency.
Most dangerous to Mr. Cameron was the unwelcome intervention of the mayor of
London, Boris Johnson, a potential wild-card rival for the Conservative
leadership. Mr. Johnson, who is perhaps Britain’s most popular politician,
enjoys injecting himself into questions of foreign policy when the spirit moves
If Britain was asked to sign a treaty creating “a very dominant economic
government” across Europe, he told BBC radio, then Mr. Cameron should veto it.
“And if we felt unable to veto it, I certainly think that it should be put to a
referendum,” he said. He added that in rescuing the euro, there was a danger of
“saving the cancer, not the patient.”
Mr. Cameron says he has pledged to call a referendum on any treaty that would
transfer more power from Britain to Europe. None of the current possibilities
features such a treaty, he said, so there is no cause for a referendum.
The other political pressure on Mr. Cameron, of course, comes from the unique
challenge of a coalition government with partners who disagree on many issues,
including Europe. This puts him and his deputy prime minister, Nick Clegg, a
Liberal Democrat, in tough spots for equal but opposing reasons.
“Nick Clegg has party activists who don’t like the idea of the coalition and
don’t like many of the things it has done, and they’re the most Europhile of the
three main parties,” Mr. Fielding of the Center for British Politics said. “And
David Cameron has on his back benches people who don’t like the idea of the
coalition and don’t like many of the things it has done, and they’re the most
Euroskeptic. It’s a tricky position for them all to be in.”
Sarah Lyall reported from London, and Stephen Castle from
Britain Suffers as a Bystander to Europe’s
Crisis, NYT, 7.11.2011,
The New York Times
By PAUL KRUGMAN
euro be saved? Not long ago we were told that the worst possible outcome was a
Greek default. Now a much wider disaster seems all too likely.
True, market pressure lifted a bit on Wednesday after central banks made a
splashy announcement about expanded credit lines (which will, in fact, make
hardly any real difference). But even optimists now see Europe as headed for
recession, while pessimists warn that the euro may become the epicenter of
another global financial crisis.
How did things go so wrong? The answer you hear all the time is that the euro
crisis was caused by fiscal irresponsibility. Turn on your TV and you’re very
likely to find some pundit declaring that if America doesn’t slash spending
we’ll end up like Greece. Greeeeeece!
But the truth is nearly the opposite. Although Europe’s leaders continue to
insist that the problem is too much spending in debtor nations, the real problem
is too little spending in Europe as a whole. And their efforts to fix matters by
demanding ever harsher austerity have played a major role in making the
The story so far: In the years leading up to the 2008 crisis, Europe, like
America, had a runaway banking system and a rapid buildup of debt. In Europe’s
case, however, much of the lending was across borders, as funds from Germany
flowed into southern Europe. This lending was perceived as low risk. Hey, the
recipients were all on the euro, so what could go wrong?
For the most part, by the way, this lending went to the private sector, not to
governments. Only Greece ran large budget deficits during the good years; Spain
actually had a surplus on the eve of the crisis.
Then the bubble burst. Private spending in the debtor nations fell sharply. And
the question European leaders should have been asking was how to keep those
spending cuts from causing a Europe-wide downturn.
Instead, however, they responded to the inevitable, recession-driven rise in
deficits by demanding that all governments — not just those of the debtor
nations — slash spending and raise taxes. Warnings that this would deepen the
slump were waved away. “The idea that austerity measures could trigger
stagnation is incorrect,” declared Jean-Claude Trichet, then the president of
the European Central Bank. Why? Because “confidence-inspiring policies will
foster and not hamper economic recovery.”
But the confidence fairy was a no-show.
Wait, there’s more. During the years of easy money, wages and prices in southern
Europe rose substantially faster than in northern Europe. This divergence now
needs to be reversed, either through falling prices in the south or through
rising prices in the north. And it matters which: If southern Europe is forced
to deflate its way to competitiveness, it will both pay a heavy price in
employment and worsen its debt problems. The chances of success would be much
greater if the gap were closed via rising prices in the north.
But to close the gap through rising prices in the north, policy makers would
have to accept temporarily higher inflation for the euro area as a whole. And
they’ve made it clear that they won’t. Last April, in fact, the European Central
Bank began raising interest rates, even though it was obvious to most observers
that underlying inflation was, if anything, too low.
And it’s probably no coincidence that April was also when the euro crisis
entered its new, dire phase. Never mind Greece, whose economy is to Europe
roughly as greater Miami is to the United States. At this point, markets have
lost faith in the euro as a whole, driving up interest rates even for countries
like Austria and Finland, hardly known for profligacy. And it’s not hard to see
why. The combination of austerity-for-all and a central bank morbidly obsessed
with inflation makes it essentially impossible for indebted countries to escape
from their debt trap and is, therefore, a recipe for widespread debt defaults,
bank runs and general financial collapse.
I hope, for our sake as well as theirs, that the Europeans will change course
before it’s too late. But, to be honest, I don’t believe they will. In fact,
what’s much more likely is that we will follow them down the path to ruin.
For in America, as in Europe, the economy is being dragged down by troubled
debtors — in our case, mainly homeowners. And here, too, we desperately need
expansionary fiscal and monetary policies to support the economy as these
debtors struggle back to financial health. Yet, as in Europe, public discourse
is dominated by deficit scolds and inflation obsessives.
So the next time you hear someone claiming that if we don’t slash spending we’ll
turn into Greece, your answer should be that if we do slash spending while the
economy is still in a depression, we’ll turn into Europe. In fact, we’re well on
Killing the Euro, NYT, 1.12.2011,
and the Euro
The New York Times
Reserve’s move on Wednesday to make it easier for European banks to acquire
dollars shows that American policy makers understand the gravity of Europe’s
turmoil and will do what they can to prevent a financial collapse across the
Atlantic. European leaders, however, seem paralyzed and, even at this point,
fail to share the Fed’s sense of urgency.
The Fed’s extraordinary intervention should impress upon the European Central
Bank, as well as its paymasters in Germany, that it is high time it stopped
sitting on its hands. Only aggressive action by the bank can arrest the
government debt crisis that is spreading across the Continent and threatening
the very survival of the euro.
The Fed offered to swap dollars for euros at a low interest rate with the
E.C.B., which would allow it to offer cheap dollars to European banks. That
became necessary when American money market funds and other financial
institutions started cutting off financing to banks in Europe, which own piles
of risky government bonds.
Absent an alternative source of dollars, Europe’s banks could have been forced
into a fire sale of dollar-denominated bonds and other assets, which would have
spread the crisis to American financial institutions. But, while it was
necessary, the Fed’s move does not address the root of Europe’s immediate
dilemma: investors are demanding high interest rates to buy the bonds of weak
euro-area economies, which are burdened by big piles of debt and are unable to
devalue their currencies to become more competitive.
The European leaders’ failure over the past two years to assemble a credible
bailout plan to restore financial stability to the weak economies like Greece
has pushed the crisis to Italy, the euro zone’s third-biggest economy, which
owes $2.5 trillion and must refinance $530 billion of that debt next year. This
week, Italy issued new debt at interest of nearly 8 percent, a rate that, if
sustained, could force the country to default. The euro could not survive such
This is why it is urgent for the E.C.B. — which can print euros at will — to act
immediately by promising to purchase as many bonds of stricken countries as is
necessary to reduce their interest rates to affordable levels.
Until now, the central bank has refused to intervene on a substantial scale.
Leaders in Germany, the strongest European economy, argue that allowing the
central bank to turn on the printing press would foster profligacy by taking
weak nations off the hook. And it says it fears inflation, an implausible
concern for economies that are slipping into recession.
On Thursday, Mario Draghi, the president of the E.C.B., made a veiled suggestion
that the bank might buy more bonds if nations in the euro zone could agree to
establish a “fiscal compact” that set credible rules and enforcement mechanisms
to ensure that budget deficits are pared. This would be good news if the central
bank started buying bonds right after the European summit meeting next week. But
if it waits until euro-zone countries agree to give the central bank or the
European Commission control over their budgets, the euro is probably doomed.
The Fed and the Euro, NYT, 1.12.2011,
Meant to Unite Europe,
Seems to Rend It
The New York Times
By STEVEN ERLANGER
PARIS — The
euro was a political project meant to unite Europe after the Soviet collapse in
a sphere of collective prosperity that would lead to greater federalism.
Instead, the euro seems to be pulling Europe apart.
As European leaders scramble to present a united front for this weekend’s
critical meeting in Brussels, anxiety in Europe is growing, and not just about
the euro. The assumptions of 60 years suddenly seem hollow, and the road ahead
is unclear, as if the GPS system has gone out of whack.
On the surface, the European Union is an enormous success. It has nearly 500
million citizens and a gross domestic product of more than $17 trillion, larger
than that of the United States and more than three times China’s or Japan’s. It
is America’s largest trading partner by far, and together the two economies
account for roughly half the world’s gross domestic product and nearly a third
of its trade.
But Europe is in economic and demographic decline as Asia is rising. The
European Union’s share of global trade is steadily dropping, especially in
exports. Its aging population is placing huge strains on generous social welfare
and pension programs and pumping up sovereign debt in an extended period of flat
Technologically, it is behind the United States, but its pay scales are too high
to be an easily competitive exporter.
The current crisis over the euro has deep roots in the imbalances between north
and south, rich and poor, export-led and service-driven economies, tied together
by a currency but few rules, and those are rarely enforced.
A fix will require fundamental changes in the functioning of the bloc, with more
interference in the workings of sovereign states. There would need to be a
fiscal union, with a treasury and a finance minister capable of intervening in
national budgets, and more unified tax and pension policies. But it is far from
clear that the European Union can gather itself to take these fateful steps away
from nationalist identities to a truly European model.
“We are today confronted by the greatest challenge our union has known in its
entire history,” said José Manuel Barroso, the head of the European Commission.
“It is a financial, economic and social crisis. But also a crisis of confidence
— in our leadership, in Europe itself, in our capacity to find solutions.”
There are many who believe that the European Union and its leaders have already
been found wanting, and that the European project that brought democracy and
peace to the Continent may begin to unravel.
“This crisis is threatening the benefits of 60 years of European integration,”
said Nicolas Baverez, a French economist and historian. “All the principles on
which the euro zone was built — no state default, no monetary transfers, no
bailouts and strict limits on debt — all these principles are dead, and we have
no rules to make this work.”
Worse, he said, political leaders underestimate the dangers. “This is not just
another recession, but a real and fundamental crisis,” he said. “There is a
tension in the political system and doubt about democratic institutions that we
have not experienced since the fall of the Soviet Union.”
Built from the ruins of war and expanded generously in the euphoria after the
Soviet collapse, the European Union heralded itself as a model, radiating “soft
power.” But now the model looks tarnished and flawed.
Leaders seem diminished; local politics trump solidarity. There is a new
nationalism degrading the collective responsibility and shared sovereignty that
defines the European Union. Euro-skepticism runs from far-right parties that
simultaneously detest immigrants, globalism and Brussels to the governing
parties of Europe’s most successful countries.
A European Union of 15 nations seemed coherent and manageable; the Europe of 27,
soon to be 28, is almost ungovernable, even by a professional bureaucracy with
little connection to voters and whose decisions cause increasing resentment,
summarized in the “democratic deficit” that the European Union suffers.
The historical ironies are considerable.
Germany, for example, divided and in ruins after the war it fought to dominate
Europe, is reunited and dominating Europe now, but without arms and with deep
Nothing gets done in the European Union without German agreement, commitment and
money. But in Chancellor Angela Merkel, Germany has a leader who is reactive and
uninspiring, while her coalition partners, the Free Democrats, are slumping into
irrelevance. Her eye is on Germany’s internal politics, its loose federalism and
coalition government, a major contrast to France’s centralized, nearly
France once dominated the European Union, but Paris has now fallen behind
booming Germany, one reason that François Mitterrand feared German
reunification. Anxious about its own debt, banks and credit rating in the midst
of a nasty presidential campaign, France is having a hard time dragging Berlin
At the same time, the countries of Eastern Europe are more vibrant economically
than many of their western partners. They share much of the German, Dutch and
Finnish view about strict fiscal discipline, and are reluctant to join a shaky
euro and become responsible for the failures of others.
Britain, always an outlier in the European Union, looks wise to reject the euro,
and the mood now is probably more anti-European than even in the days of
The fundamental changes needed to cope with the euro crisis — particularly the
historic step of creating a common treasury — would require a redrawing of the
basic treaties, which would require the approval of the voters.
But Europe is unpopular, a local metaphor for globalization, faceless and
interfering. It is by no means certain that the voters are ready to leap into a
new world of economic integration. Even if they prove to be, the new treaty will
be complex and take years to draft even before being put to the electorate for
ratification, if there is ratification.
It is easy to say that the answer is “more Europe,” not less. That can seem
self-evident to Eurocrats and the political elite. But “more Europe” may not be
what voters want.
“The only thing that can save the euro in its current form can’t and shouldn’t
be done without democratic debate and support,” said Simon Tilford, chief
economist for the Center for European Reform, a research institution.
“You need to bring the electorate with you,” he said. Of course, he
acknowledged, a real democratic debate “could exacerbate the crisis.” That may
be the largest historical irony of all.
Euro, Meant to Unite Europe, Seems to Rend It, NYT, 19.10.2011,
Sterling hits record low against the euro
December 15, 2008
From Times Online
Sterling tumbled to a new low against the euro today, with some travellers
receiving less than €1 for every pound they exchange at airport terminals and
The euro has risen to a record high of 89.98p, coming close to breaking through
the key 90p barrier.
The pound is now at its lowest level since the single currency was introduced in
1999 and has been weakening since the beginning of the year, though the decline
has become more marked in recent days as the UK economy worsens.
Britain is regarded, so far at least, to have been hit harder by the global
slowdown and financial crisis than the 15-nation eurozone.
This week, new figures are expected to show that UK unemployment is worsening,
increasing from 5.8 per cent to 6 per cent, while the number of people claiming
jobless benefits is forecast to have risen by 45,000 in November.
Just a few months ago, travellers could be confident of receiving at least €1.15
or €1.20 for each pound, but that amount has fallen to €1 in many foreign
Sharply falling demand for sterling-denominated assets, such as shares in
UK-listed companies, has also helped reduce demand for sterling, which has
dragged the pound lower.
But spread-betting companies are reporting a surge in business as thousands of
private investors in Britain are joining institutional investors in reckoning
that sterling has further to fall.
Sterling hits record low
against the euro, Ts, 15.12.2008,
Sterling hits new record low against euro
Wednesday, 10 December 2008
By Tamawa Desai, Reuters
Sterling hit a record low against the euro and a basket of currencies today
as pessimism about the UK economy was reinforced by a think tank report showing
a sharp contraction in growth.
The report, which said the nation's economy shrank more than many believe in
the three months to November, kept expectations high that the Bank of England
will continue to cut interest rates aggressively.
The pound extended losses as British finance minister Alistair Darling told
parliament on Wednesday that sterling depreciation would help the country's
By 1507 GMT, the pound had fallen to 87.83 pence versus the euro, its weakest
since the single currency was introduced in 1999.
Meanwhile, trade-weighted sterling fell to 79.7, the lowest on a daily basis
according to Bank of England records going back to 1990.
"There's really not much good to say about the pound, although it has already
fallen a long way," said Lee Hardman, currency economist at Bank of
Given the prospect of lower interest rates and a rising fiscal deficit, "the
risks are still clearly to the downside," he added.
Despite sterling's losses against the euro, it rose 0.6 percent to $1.4829
(GBP=) against a broadly weaker dollar on a slight pullback in risk aversion as
global shares gained on news of a tentative agreement to bail out US carmakers.
The National Institute of Economic and Social Research said on Wednesday
Britain's economy shrank by a full percentage point in the three months to
November and the pace of contraction looked set to accelerate into the end of
"There is every reason to believe that the output decline in the fourth calendar
quarter of the year will be larger than one percent in magnitude," it said.
The report came on the heels of dismal data in manufacturing, housing and retail
sales on Tuesday, which bolstered expectations that a sharp economic downturn
will put more pressure on the central bank to ease rates further.
"Altogether, these readings made a strong case for the United Kingdom ultimately
suffering the worst recession in the developed world," Commerzbank analysts said
in a research note.
The BoE has cut key interest rates by 300 basis points since October to 2
percent, their lowest since 1951.
BoE policymaker Paul Tucker is appointed deputy governor for financial stability
for a five-year term starting next March, and arch policy dove David
Blanchflower will step down when his term expires in May, Darling told
Sterling hits new record
low against euro, I, 10.12.2008,
The currency crunch:
British tourists pay price
Today a euro is worth 80p, an all-time high against the pound.
Bad news for
British holidaymakers –
but are there more serious consequences
of living next
door to the world's strongest currency?
Thursday, 10 April 2008
By Martin Hickman, Consumer Affairs Correspondent
Tens of millions of British people will experience their own credit crunch on
holiday this year as the soaring value of the euro forces them to pay more for
everything from the price of a coffee in a Parisian cafe to a hotel room in
Barcelona. As currency traders pushed the European single currency to a record
high against the pound yesterday, holidaymakers were coming to terms with the
fact they now have almost a fifth less spending power on the Continent than a
The 17 per cent fall since last February has come about as the euro has
powered ahead on the strength of its member economies, while the pound has
slumped, most recently because of the knock-on effects of the sub-prime collapse
in the US.
The euro's new high of 80p, reached in early trading yesterday, came after the
International Monetary Fund warned that UK growth would only hit 1.6 per cent
this year, compared with the Government's claim of up to 2.25 per cent.
The euro's surge may spur new theories from economists that the currency of the
eurozone will become the main international unit of currency as early as 2015,
upsetting almost the best part of a century of dominance of the dollar.
For holidaymakers, however, the collapse of the pound has an earthier reality
that will curtail their spending power in shops and restaurants in Ireland and
on the Continent. In practice, it means spending money of £500 earmarked for
eating out, trips and presents is now worth only £415 in the 15 eurozone states.
The 42 million foreign holidays a year that British people take are influenced
by affordability and, during the past two years, the cheap dollar has lured
thousands of Britons to stock up on designer jeans and iPods in New York.
However, the majority of foreign holidays, some 31 million, are taken in the
eurozone and going there – and staying there – has become markedly more
As a result of the currency fluctuation, a family weekend break to Disneyland in
Paris that would have cost £456 last year costs £533 this month. A day's car
rental in Vienna that would have set back a Briton £56 now costs £67.
And those expecting to savour a meal for two Ferran Adria's acclaimed El Bulli
restaurant in Spain will find the experience has risen in price from £195 to
Many people who had been hoping to go on holiday to France or Spain may be
forced to change plans and stay at home instead.
Others may look for cheaper destinations outside the eurozone, such as Bulgaria
The Association of British Travel Agents said yesterday that the rise of the
euro might prompt the growth in journeys to Turkey and Egypt as well as
At home, the surging euro will apply upwards pressure on much that we import
from the Continent, from cheese to cars, though retailers may take some of the
But there will be a sign of relief from British companies battling to export
their goods as their products become cheaper in the 15 euro countries.
After a shaky start in 1999, when the economies of the 11 participating states
were lurching downward, the euro has become a totemic success for the European
project and has been rising against the pound for more than a year.
Further pressure is likely to be piled on to the pound – and in favour of the
euro – today if, as expected, the Bank of England's Monetary Policy Committee
cuts interest rates. Some economists believe the rate may cut by as much as half
a per cent.
Geoff Kendrick, a currency strategist, said: "The UK has clearly softened a lot
more than Europe and I guess that's why we'll see the Bank of England cut rates
tomorrow while the ECB will be hawkish... At least for now it looks like the
trend (in euro/sterling) is well and truly intact."
The pound has weakened after days of bad economic news which has increased the
chances of the interest rate being cut, reducing the attractiveness of holding
This week, the Halifax house price index posted its steepest monthly fall in
over 15 years, a 2.5 per cent fall in a single month. Banks have withdrawn their
100 per cent mortgage deals and Nationwide's consumer confidence fell to its
lowest level in four years.
The currency crunch:
British tourists pay price for euro's strength, I, 10.4.2008,
Dollar Falls Against Euro, Yen
March 17, 2008
Filed at 12:09 p.m. ET
By THE ASSOCIATED PRESS
The New York Times
BERLIN (AP) -- The dollar fell to record low against the euro
on Monday, and sank to its lowest level in more than 12 years against the
Japanese yen as investors reacted to the latest emergency rate cut by the U.S.
Federal Reserve and to news that JPMorgan Chase is buying rival investment bank
Bear Stearns for a fraction of what it was worth last week.
In European trading, the euro rose as high as $1.5904 but soon fell back to
$1.5746. That was still above the $1.5687 it bought late Friday in New York
The U.S. Commerce Department said that the deficit in the current account
dropped by 9 percent last year to $738.6 billion. Later, the Fed said U.S.
industrial output fell half a percent in February, the biggest amount in four
The dollar fell as low as 95.72 Japanese yen, its lowest since August 1995,
before recovering to 97.03 yen but still below the 99.21 yen it bought in New
York on Friday. The dollar broke below 100 yen just last Thursday.
The lows came a day after the Fed approved a cut in its emergency lending rate
to financial institutions to 3.25 percent from 3.5 percent.
Also on Sunday, JPMorgan Chase & Co. said it would acquire Bear Stearns for
$236.2 million in a deal backed by the Fed. JP Morgan will pay $2 per share,
down from Bear Stearns closing price of $30 per share on Friday.
''It has certainly been something of an historic weekend, with an emergency Fed
rate cut and news that J.P. Morgan intends to acquire Bear Stearns marking the
next chapter in the credit crisis,'' said James Hughes of CMC Markets in London.
''Unsurprisingly this has been broadly bad news for the dollar with (the)
euro-dollar managing a short-lived breach above 1.5900 -- yet another all-time
record high -- although this has been short lived with profit takers stepping
in,'' Hughes said.
The Fed is scheduled to meet Tuesday, and analysts are predicting that the
central bank could reduce its 3 percent benchmark rate on overnight loans
between commercial banks by as much as another percent.
The European Central Bank, by comparison, has left its own rate at 4 percent as
inflation in the 15-nation euro zone hit yet another record high last month.
Lower interest rates can jump-start a nation's economy, but can also weigh on
its currency as traders transfer funds to countries where they can earn higher
So far the ECB has remained steadfast in keeping its rates unchanged because
inflation has been so high, but politicians and some companies have bemoaned the
strong euro because it makes goods produced in the euro zone far more expensive
elsewhere and undermines exports.
However, at the same time, the higher euro can increase domestic purchasing
The Bank of England said Monday it will offer an extra 5 billion pounds --
around $10.1 billion -- of reserves into the short-term money market because of
conditions in the market.
The dollar rose against the British pound, which fell to $2.0059 from $2.0218 on
Dollar Falls Against
Euro, Yen, NYT, 17.3.2008,
Dollar Weakens to $1.50 to the Euro
February 27, 2008
The New York Times
By CARTER DOUGHERTY
The dollar breached the level of $1.50 to the euro on Wednesday for the first
time as fears of weakness in the United States economy mixed with evidence of
resilience in Europe.
In Asian trading, the euro hit $1.5047 after flirting with the $1.50 level in
New York Tuesday. That was the dollar’s weakest position since the euro, now the
currency of 15 countries, was introduced in 1999. In New York, the dollar
continued to weaken and was trading at $1.5126 at 12:30 p.m.
“Psychologically and symbolically, this is a significant move,” said Tony
Morriss, senior currency strategist with Australia & New Zealand Banking Group
in Sydney. “The economic numbers out of the U.S. have been uniformly terrible,
and we are entering a new phase of dollar weakness.”
The dollar has weakened steadily in recent weeks after recovering from similar
levels in November on the emerging realization that the Federal Reserve, despite
worries about inflation in the United States, will keep cutting interest rates
to protect economic growth at the same time that the European Central Bank is
holding rates steady.
Interest rate differentials drive currency movements by decreasing the appeal of
dollar-denominated assets. Donald L. Kohn, vice chairman of the Fed, played down
the risks of inflation in the United States on Tuesday, focusing instead on the
risks to economic growth — a clear sign the Fed has not finished the
rate-cutting cycle it began after the start of financial market turmoil late
“The Fed’s stance is really aggressive,” said Stephen Jen, chief currency
economist at Morgan Stanley in London. “Every time we think the Fed is eyeing
inflation, they turn around and cut rates.”
Another round of weakness has the potential to increase political tensions in
Europe, though so far France is the only country that has consistently
complained about the strong euro. Though it has acknowledged the potential costs
of a stronger euro, Germany has remained upbeat, saying it is not worried.
Volker Trier, the chief economist of the German Chambers of Industry and
Commerce, largely echoed this view on Wednesday.
“The euro’s strength is hurting here and there,” Mr. Trier said, according to
Reuters. “Over all, though, the economy can still cope with it well.”
Asian currencies have also risen against the dollar, but exporters there can
take comfort in the fact that any pain is being broadly shared.
“Asian currencies are uniformly appreciating against the U.S. currency due to
dollar weakness, rather than any single Asian currency rapidly firming against
the others,” said Cem Karacadag, director in the emerging markets economics
group at Credit Suisse in Singapore. “So, no single country is going to lose
export share to its competitors in the region.”
Dollar Weakens to $1.50
to the Euro,
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