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The World from Berlin: 'EU Leaders Are Staring at Markets Like Rabbits at a Snake'

French President Nicolas Sarkozy and German Chancellor Angela Merkel have made sweeping promises in recent months. The results, however, have been meager. Now the two are demanding a swift recapitalization of European banks. German commentators aren't buying it.

German Chancellor Angela Merkel and French President Nicolas Sarkozy shaking hands after making yet another pledge designed to save the euro. Zoom
AFP

German Chancellor Angela Merkel and French President Nicolas Sarkozy shaking hands after making yet another pledge designed to save the euro.

The euro crisis is escalating again, with growing concern that a looming Greek insolvency could trigger a new banking crisis. Furthermore, apparent divisions between France and Germany on the recapitalization of banks have unsettled investors and there are widespread concerns that Slovakia will block the expansion of the euro bailout fund in a parliamentary vote due later on Tuesday.

Meanwhile, Greek newspapers are reporting that inspectors from the "troika," made up of the European Union, the European Central Bank and the International Monetary Fund, will issue a tepid report on Greece's progress on reforms. The report's findings are crucial for Greece to receive the next tranche of international aid from the rescue package assembled in the spring of 2010.

German media commentators on Tuesday heap criticism on the crisis management of European leaders, saying policy responses have been dictated throughout by pressure from the financial markets. Whenever those market pressures ease, leaders seem to take a breather rather than using periods of calm to come up with a comprehensive strategy to solve the crisis once and for all.

The regular meetings between German Chancellor Angela Merkel and Nicolas Sarkozy are a case in point, commentators say. The two leaders get together whenever financial markets start panicking, and make grand pledges to try to calm the situation. But then little concrete progress is made. Their announcement in mid-August of plans to set up an economic government for the euro zone, to enshrine debt brakes in all euro zone member states and introduce a financial transaction tax seem forgotten. Instead, because financial markets now fear European banks -- and French banks in particular -- will get into trouble as a result of a possible Greek debt cut, they talked at their last meeting on Sunday in Berlin about a recapitalization of banks, feigned agreement and said a comprehensive plan would be in place by the end of the month.

Pundits say EU leaders need to step back from the hectic fire-fighting that has dictated their crisis response over the last 18 months, and come up with a bold, comprehensive, lasting solution.

Left-wing Berliner Zeitung writes:

"How long ago did this happen? Angela Merkel and Nicolas Sarkozy stood in front of the media and announced the results of their crisis talks: debt brake and economic government were their buzzwords, and they also referred to a tax on financial transactions. That was in mid-August. Last Sunday evening they stood there again, and this time they talked about recapitalizing banks. By the start of November, they said, Europe's banks must be stabilized. What happened to the financial transaction tax between those two meetings? What about the debt brake? And the economic government? And the European coordination of all these projects? Hard to say. They didn't say anything about it."

"No, our governments aren't lazy, that's not the problem. In fact they're hard at work setting up rescue funds for Greece and stability mechanisms for later, and now they're trying to save the banks again. The problem is that almost everything they do consists of hectic reactions to the next looming disaster that 'the markets' have in store for us. Our governments have turned into what armies call 'crisis reaction forces.' The markets dictate the pace of their actions -- and it's a break-neck pace. What the governments are doing has little in common with politics, if you see politics as shaping society and the economy in the interests of the common good, however that is defined."

Conservative Die Welt writes:

"Europe's top politicians are staring at the financial markets like rabbits at a snake. They are allowing themselves to be driven along by developments in the capital markets as if they had no will of their own. Virtually every major anti-crisis measure in the last year and a half was only decided and implemented under the (time) pressure of acute market turbulence; the recapitalization of banks being discussed now will only be the next example."

"All this wouldn't be so bad if the impetus of governments didn't immediately wane whenever the market situation eases even a little. As it is, periods of relative calm aren't used, and any thinking about a comprehensive solution to the crisis is left to academics -- until politicians are reawakened by the next outbreak of panic in the share, bond or inter-bank markets. The markets are in charge in this crisis. But in a way that no one can want."

Conservative Frankfurter Allgemeine Zeitung writes:

"If the next EU summit is really to have a calming effect on citizens and financial markets, it will have to come up with credible solutions: the euro-zone banks must be recapitalized to such an extent that they can withstand a far greater loss on their Greek bond holdings than they had factored in so far. That is linked to the acknowledgement by governments that Greece is insolvent."

"One mustn't abandon the principle that every euro member state is responsible for its own banks. That is the only way to retain the incentive to limit the aid to the lowest possible amount. The German chancellor is right to prevent French President Sarkozy from trying to plunder the bailout fund EFSF for the purpose of protecting French banks and sparing his own budget."

"In political terms, the second banking sector rescue will be hard to convey to the public, especially in Germany. The government didn't use its primacy over the financial industry to force private sector banks to set aside more provisions in time. And politicians didn't restructure the state Landesbanken (publicly-owned regional banks) either."

Business daily Financial Times Deutschland writes:

"After President Sarkozy's brief meeting with Frau Merkel on Sunday, both emphasized that they are in total agreement on the rescue of banks. The opposite is the case. The French president wants the joint rescue of banks. Merkel wants the same procedure as in 2008, when euro-zone countries competed over who could provide the most aid to their banks. Sarkozy believes the French banks will need a lot of money. Merkel believes what German banking associations are whispering to her, that German banks will be less affected this time around."

"One has to conclude that the German position is even crazier than the French one. The euro debt crisis should have shown even the German nationalists in the government and parliament that every competitive advantage that German banks and the German government budget enjoy as a result of investors' flight to quality evaporates very quickly. The partner countries suffering the capital outflows end up needing all the more aid."

David Crossland

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