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Europe Has to Stop Appearing Like a Headless Chicken - German views

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The good news is that Portugal and Spain have both held successful bond sales this week. The bad news is that the European Commission and euro-zone leaders appear hopelessly divided on the size of the euro-zone rescue fund. German papers on Thursday decry the continuing lack of unity in the midst of the debt crisis.

There was a small glimmer of hope amidst Europe's economic gloom this week as first Portugal and then Spain managed to sell bonds at lower than expected interest rates. Yet uncertainty over the extent of the euro zone's debt crisis and division within the currency union's leadership about how to address it means that investors are still nervous.

Europe has failed to forge a common stance on whether or not its massive rescue fund needs to be increased, despite the fact that so far only Ireland has availed itself of the loans. While Brussels wants to expand the mandate and lending capacity of the fund, European Union leaders, particularly in Berlin and Paris, are balking at contributing even more to bailing out struggling euro-zone partners.

 

On Thursday, Berlin reiterated its position that the €750 billion rescue fund, known as the European Financial Stability Facility (EFSF) did not need to be extended at the moment. Government spokesman Steffen Seibert told Reuters that "the discussion about increasing the euro rescue fund is not pending," adding that the current fund was adequate to fulfil its purpose.

The European Commission has been pushing for an increase to the fund. On Wednesday, Commission President Jose Manuel Barroso was again on the offensive. "We consider that its effective financing capacity must be reinforced and the scope of its activities widened," he told reporters in Brussels as he opened a new round of policy coordination between the EU executive and the governments.

On Wednesday, Chancellor Angela Merkel did not directly comment on his statement but she vowed at a news conference that Germany would do "what is necessary" to safeguard euro-zone stability. Merkel, though, is likely to face fierce opposition from within her own party, which is facing tough regional elections this year, to any moves which would increase Germany's contribution to the fund.

France has also been fiercely resistant to boosting the EFSF fund. On Thursday, however, French Prime Minster Francois Fillon said that euro-zone members, especially France and Germany, were ready to do "absolutely everything" for the bloc's economic stability.

German Finance Minister Wolfgang Schäuble has said that euro-zone governments were working on a "comprehensive package" to solve the deeply rooted debt crisis. On Wednesday he told reporters that the package could be agreed upon by February or March. "We can't just solve the problems over the short term -- if there are short-term problems -- but also over the mid term," he said.

The pressure on Portugal in recent days has been intense. Lisbon, though, surprised many on Wednesday by selling 10-year bonds relatively easily. On Thursday, Spain followed with a successful five-year debt sale, showing that investors seem more confident that the euro-zone governments would agree to bold new measures to deal with the euro bloc's debt crisis.

Meanwhile in a widely expected move, the European Central Bank on Thursday left its main interest rate unchanged at 1 percent for the 20th consecutive month.

German newspapers on Thursday take a look at the ongoing euro-zone crisis and many are critical of the lack of unity within the bloc.

The Financial Times Deutschland writes:

"Barroso's proposal to increase the EU rescue fund comes at the wrong time. One could have talked about such a move if Portugal actually had to ask for EU help. But the way he did it only achieved one thing: making investors even more nervous. This kind of approach is not to be interpreted as a sign of strength, but as an indication that the EU is already preparing for bankruptcies in Spain, Italy and Belgium."

"Chancellor Angela Merkel and French President Nicolas Sarkozy are right to oppose Barroso. However, this means that once again the EU appears divided, something that also does little to calm the situation."

"In the long term, the euro zone will only hold together if there is a closer coordination of economic and financial policy among EU states so that imbalances do not occur in the first place."

The center-right Frankfurter Allgemeine Zeitung writes:

"Only a small part of the €750 billion joint fund has been accessed by Ireland (which above all is rescuing Irish banks). However, that doesn't faze Barroso, whose motto is: 'We defend the euro, whatever the cost.' Yet why are countries with better credit-worthiness, such as Germany, allowing themselves to be pushed around by Barroso? Does Chancellor Merkel not see that Germany is being made a hostage of the banks, which simply want to pass on their credit risk to the taxpayers? If access to the funds is no longer connected with strict conditions in the future, then that will please not only the bonus bankers but also the indebted euro countries. Living on credit will then still be rewarded."

The business daily Handelsblatt writes:

"There seems to be great fear among the political leadership of the euro zone that other countries could also buckle under the pressure of the markets. That is the only way to explain why the European Commission and euro-zone states are seriously considering increasing the euro rescue fund by several hundred billion euros."

"Regardless of how much the credit facility for broke euro states is increased: It cannot get rid of the severe debt crisis in the euro zone. The currency union has only granted a few years of breathing space to those countries who are now in trouble due to years of serious economic and budget mistakes. Greece and Ireland have been given a reprieve, in order to correct failures and find their way back to the global economy."

"The fate of these countries should act as a warning to other euro states. It should motivate all governments to now quickly reduce their huge debt burdens. … Greece, Ireland and Portugal present striking examples of what happens when a country becomes a hostage of its creditors on the financial markets. That could also happen to seemingly stable countries if governments do not impose tough cuts now -- including Germany. The biggest EU state, just like the others, has for years continued to take on more debt. The financial markets are now presenting the bill for this policy. The people of Europe will have to tighten their belts for a long time to come in order to pay it off."

The center-left Süddeutsche Zeitung writes:

"Contrary to expectations, Portugal was able to raise new credit on the financial markets without any problems. Despite these reassuring signals, the president of the European Commission, Jose Manuel Barroso, could think of nothing better to do than demand a bigger EU rescue fund. More money for Europe even though Portugal has just proved that it doesn't need the money? Germany and France are rightly annoyed. The new cacophony is exactly the wrong message for investors: Europe proves once again how weak it is at just the moment when strength is required. This lack of unity is an invitation to speculators to play their game with individual euro states."

"Europe has to show determination that it will defend the common currency, a currency that is providing Germany with so much growth and employment at the moment. Europe has to make it clear that it will help struggling member states -- without constantly talking about extra billions or technical changes to the rescue fund. And Europe has to establish rules that will force all of the euro governments to pursue solid economic policies and to introduce cuts and reforms that will create more jobs and promote international competitiveness."

"So far, the taxpayers in Germany and France have not lost any money. And if everything goes according to plan, they will get back the loans with decent interest added. But this plan will only succeed if Europe doesn't continue to seem like a headless chicken. The cacophony could then lead directly to a disaster ending with the collapse of the common currency."

The left-leaning Die Tageszeitung writes:

"The question is not if Portugal should accept the EU rescue package -- but when."

"However, the term can be misleading. The EU's financial help may be called a 'rescue package' but it would be no rescue for Portugal. That's because even EU countries demand an inflated interest rate of 5.8 per cent, as Ireland and Greece are finding out to their dismay. Just like these countries, Portugal will remain caught in a debt trap, even if it does accept help from the EU."

"The €750 billion bailout package is unparalleled -- and yet it will be ignored by investors. Risk premiums are increasing as if nothing happened and infecting more and more new countries. Now Belgium is deemed to be in danger too."

 

"The Commission is helpless: 'More of the same' seems to be the motto. If a bailout fund of €750 billion is not enough then it must be increased. But it is very doubtful whether sheer quantity will help. It is obvious to investors that several European countries are heading for bankruptcy."

"And that is why there are three measures that the EU won't be able to avoid taking in the long term: First of all, it must lower the punitive interest rates on their loans. Secondly, some countries need partial debt relief. This is certainly the case for Greece and Ireland and probably for Portugal as well. And thirdly, the periphery countries must become competitive. This can't happen as long as Germany is committed to wage dumping."

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