Market participants and EU politicians are starting to sound more apocalyptic in their warnings about the euro crisis as yet another make-or-break summit, on Dec. 8 and 9, draws near. Meanwhile the pressure on Germany to drop its opposition to euro bonds or a massive intervention in bond markets by the European Central Bank is intensifying by the day.
Polish Foreign Minister Radoslaw Sikorski resorted to dramatic rhetoric on Monday evening when he appealed to Germany to avert the collapse of the euro zone.
"There is nothing inevitable about Europe's decline. But we are standing on the edge of a precipice. This is the scariest moment of my ministerial life but therefore also the most sublime," Radoslaw Sikorski said in a speech in Berlin on Monday evening. "I demand of Germany that, for your own sake and for ours, you help it (the euro zone) survive and prosper. You know full well that nobody else can do it."
"I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity," he said, referring to the troubled history of relations between the two nations.
So far, though, Germany is resisting calls to allow the European Central Bank to conduct unrestricted purchases of government bonds issued by ailing euro-zone countries in order to push their borrowing costs down to sustainable levels.
It also remains opposed to jointly issued euro bonds. Its arguments are that the measures would remove the incentive on high-debt nations to get their budgets in order, would stoke inflation and would end up costing Germany too much.
Adding to the sense of foreboding, the OECD said on Monday that the euro zone's debt crisis has become the biggest threat to the global economy and that a breakup of the currency zone can no longer be ruled out.
Credit rating agencies piled on the pressure, with a French newspaper report saying Standard & Poor's could change its outlook on France's triple-A rating to negative in the next 10 days, and Moody's warning on Monday that the crisis threatened the credit standing of all European government bond ratings.
Markets may calm down a little if finance ministers from the 17 euro-zone countries, who are meeting in Brussels on Tuesday, manage to fix details of leveraging the European Financial Stability Fund (EFSF), the euro zone's bailout fund, so it can help Italy or Spain if they need aid. The two countries are considered too large to bail out under the current arrangement.
German media commentators once again slammed the euro zone's crisis management, and sharply criticized a rumored idea that the euro zone's six strongest members -- Germany, France, the Netherlands, Finland, Austria and Luxembourg -- could get together to issue so-called elite bonds. The German government on Monday denied a report in Die Welt that the proposal was being discussed as a way to stabilize the core of the euro zone and raise cash to help the other members.
The conservative Die Welt writes:
"Germany is being confronted with unfulfillable demands. On the one hand our fellow Europeans expect Germany to show more leadership in solving the crisis. On the other hand our new power is triggering rejection and resentment.
"The Germans are the indispensable nation on the continent, and a rescue is inconceivable without them. At the same time this dependence triggers defensive reactions -- a mxture of hurt national pride and discomfort at the thought that there's an elephant in the center of Europe that is being forced by the crisis to show its full power.
"Scarcely a people is less suited to this task than the contrite Germans, who spent decades pretending to be smaller than they really are and who would prefer to be just a big Switzerland in foreign policy terms. But now they're suddenly realizing that the world is relying on them to save the euro and avert a disaster for the global economy. The Germans are going through a crash course in being a leading power.
"With their focus on austerity and their refusal to permit a bigger role for the ECB, the Germans are as isolated as the Americans were with the Iraq war. Even euro allies are starting to distance themselves from Germany's rigidity. Berlin must examine its conscience and ask itself if it really has the better arguments on its side. Just referring to the German hyperinflation trauma of 1929 isn't enough.
"That doesn't mean Germany should yield to the pressure of the others. But like every other big power we have a duty to clearly communicate our position and to avoid giving the impression that we always know everything better."
The left-leaning Die Tageszeitung writes:
"The fans of 'elite bonds' appear unaware of how disastrous the consequences would be. The euro would be immediately dead -- and would disintegrate into many individual currencies. That's because the elite bonds would signal that Italy, Spain or Belgium will be dropped. These states would immediately go bankrupt because all investors would flee. Germany would not be unaffected by this chain reaction. German banks would have to write off most of their loans to debtors in the euro zone -- and would become insolvent themselves. German exports would collapse and unemployment would increase. Some German citizens might find it tempting to feel special by having elite bonds -- but unfortunately Germany itself would go bankrupt."
Business daily Handelsblatt writes:
"In the short term, Europe is the biggest threat to the global economy. Companies and investors are well advised to make contingency plans for a break-up of the euro zone. The euro can fail, even though no one wants it to. Much now depends on whether the next crisis summit on Dec. 9 will take steps towards a workable fiscal union while at the same time finding short-term funds to end the buyers' strike in bond markets.
"But if that succeeds, Europe can become a driving force for global economic growth in the medium and long term. OECD figures show that the austerity measures that have already been decided will push the euro zone's budget deficit below the level of 2 percent of GDP in 2013, while the US and Japan will remain at far too high levels above 8 percent. At that point at the latest, an investment in European government bonds will start to look more attractive."
The center-left Süddeutsche Zeitung writes:
"Last autumn in Deauville, at a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy, they agreed the following: Merkel agreed to drop her demand for truly dramatic sanctions for countries that don't keep their budgets in order. Sarkozy in turn agreed to the German demand that private creditors share the cost of the crisis.
"Just under a year later, both have performed U-turns. Merkel again wants to change the treaties. This time all euro states are to be forced to maintain solid budget discipline. Sarkozy has agreed -- but is now demanding to drop the involvement of private creditors. While Europe's two most influential politicians happen to change their minds, others are bent on presenting ever more new ideas, such as elite bonds. This idea is likely to prove even more short-lived than the Deauville deal. And none of all this is suited to boosting confidence in the euro club."
-- David Crossland
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