Source: AFP
German Chancellor Angela Merkel kicked off a crunch week of talks on
saving the euro by laying out a vision Friday for a “fiscal union” in
Europe, ahead of a pivotal summit of EU leaders.
A day after French President Nicolas Sarkozy said that Europe needed
to be “refounded” in response to a crisis that has threatened the very
existence of the EU, Merkel insisted that progress had been made.
Speaking in a hotly awaited speech in the German parliament, Merkel
said Europe was “on the verge” of creating what she called a “stability
union” for the 17-nation eurozone, with greater budgetary discipline and
control.
“Anyone who had said a few months ago that we, at the end of 2011,
would be taking very serious and concrete steps toward a European
stability union, a European fiscal union, toward introducing (budgetary)
intervention in Europe would have been considered crazy,” she said.
She said she would be holding talks with “almost everyone” in the
run-up to a summit in Brussels next Friday that many commentators have
dubbed the last chance to save the single currency, introduced with such
euphoria a decade ago.
And she confirmed she would be heading to Paris for talks with
Sarkozy on Monday to thrash out a joint Franco-German position on
changing the EU founding texts ahead of the summit.
Highlighting the challenges that face Europe’s leaders, around 17,000
people demonstrated in Athens on Thursday in a bid to force the new
government to abandon austerity measures.
The sixth general strike this year in Greece shut down public services and crippled train and ferry services.
Nevertheless, European stock markets rallied at the open, following
Asian gains, as traders continued to be generally bullish in the wake of
joint central bank action Wednesday to ease tensions in the global
financial system.
And the euro held steady against the dollar and yen in Asian trade on
Friday as investors breathed a sigh of relief over European bond sales
that hinted at rising confidence in the region’s public debt.
But despite a sense of optimism, EU authorities should be acutely
aware that the eyes of the world will be on them next Friday, one trader
in Asia said.
“Investors are monitoring the EU summit next week and the monetary
policy meeting by the European Central Bank before that,” said Masatoshi
Sato, strategist at Mizuho Investors Securities, referring to a rate
decision next Thursday.
In a landmark speech Thursday in front of 5,000 cheering supporters,
Sarkozy warned that the developed world was entering a “new economic
cycle” dominated by debt reduction, heralding tough times ahead for jobs
and business.
“We must confront with total solidarity those who doubt the stability of the euro and speculate on its break-up,” he declared.
“France is fighting with Germany for a new treaty. More discipline,
more solidarity, more responsibility … true economic government” he
said, urging members to adopt a “Golden Rule” obliging them to balance
their budgets.
Merkel said she was heading to Brussels “with the aim of changing the
EU treaty” to push through her goals, which she summed up as follows:
“Rules must be respected. Respect for them must be supervised. Their
violation must have consequences,” she said.
And she warned that the eurozone would go it alone if no agreement
could be struck on EU treaty change, while stressing that the euro club
was open to anyone who wanted to join.
Traders want to see more decisive action by the European Central
Bank, stepping in to buy up the bonds of distressed eurozone nations,
effectively acting as the lender of last resort as in Britain or the
United States.
However, Merkel again dismissed this, stressing the ECB’s
independence and insisting: “The mandate of the ECB is different to that
of the United States Fed or of the Bank of England,” referring to the
Federal Reserve Bank.
“It is written clearly in the treaties: the mandate is to guarantee
price stability and that is exactly what the ECB is doing and … I am
completely convinced of that,” she said.
She also reiterated that eurobonds, a pooling of the debt of eurozone
nations, was not the solution to the crisis, saying that anyone who
believed that to be the case “had not understood the nature of the
crisis.”
Germany, Europe’s top economy, believes that both eurobonds and any
compromising of the independence of the ECB would lead to inflation,
which the central bank was set up to prevent.
Merkel said the stakes could hardly be higher, as Europe headed into a
week that will likely define it for several years to come.
“Europe is in its most difficult existential test. As chancellor, I
am going to do everything … to ensure that Europe comes stronger out of
this test than when it went in,” she told MPs.
“Despite all the turbulence we have seen in recent times, the euro
has proved itself. It is stable … the euro is much more than just a
currency,” she added.
“The future of the euro is indivisibly linked with the unification of Europe.”
