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Berlin backs EU aid fund after Obama prodding

AFP/DDP/The Local · 11 May 2010, 17:52

Published: 11 May 2010 08:45 GMT+02:00
Updated: 11 May 2010 17:52 GMT+02:00

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"The measures send a clear signal that the markets can rely on the financial stability of the euro area and that speculating against the eurozone doesn't pay," deputy government spokesman Christoph Steegmans told a regular briefing.

Berlin is expected to provide at least €123 billion ($157 billion), but officials have warned that Germany's slice is likely to be higher - up to €150 billion - because countries for which the fund is designed will not be contributing.

The fund - the eurozone stabilisation mechanism - which was unveiled in the early hours of Monday after marathon talks in Brussels, has been dubbed "Shock and Awe" for its size and it was immediately cheered by markets.

But the New York Times reported on Tuesday that it took a phone call from Obama to convince Merkel that dramatic action was required. He stressed in the conversation late on Sunday that without "an overwhelming financial rescue" the future of the euro and the entire European Union was at stake.

“He was trying to convey that he knew these were politically difficult steps that the leaders there had to take, that he had gone through them as well,” one senior US administration official familiar with the call to Merkel told the Times. “And that, from his experience, trying to get out ahead as much as possible was the right way to go.”

Merkel has faced criticism both at home and abroad in recent weeks for apparently dithering on the bailout of Greece, possibly aggravating the chaos on the financial markets the new EU rescue package intends to quell.

The unprecedented intervention worth more than €750 billion was backed by the International Monetary Fund and central banks worldwide, and Merkel said on Monday that the package would “strengthen and protect the common currency.”

But following the unpopular Greek bailout, for which Germany is stumping up €22.4 billion over three years, this latest dip into the coffers provoked outrage in some quarters.

The populist daily Bild screamed on its front page: "Yet again, we are

the idiots of Europe."

"Germany is providing the lion's share of the loans. If they are not paid back, it is the taxpayer who will have to fork out," the paper added.

Story continues below…

Also provoking anger was the fact that the cabinet's decision came a day after Merkel announced there was no money for tax cuts and any relief would come only after 2012.

"It's unbelievable. With a gigantic €750 billion, the EU and the IMF want to save the euro. Germany's contribution alone for our bankrupt neighbours is €123 billion. Yet there is no money for us to cut taxes," said Bild.

Broadsheets were also sceptical about the package, with right-wing daily Die Welt saying: "All that has been won is a little time - how much is unclear at present."

Berlin's participation in the EU rescue package requires parliamentary approval, and the first reading of the draft law is scheduled at the next regular week-long session.

AFP/DDP/The Local (news@thelocal.de)

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Your comments about this article

15:43 May 11, 2010 by tallady
it is not likely, the problem is solved..

The European Union¦#39;s unprecedented bailout package is unlikely to be a ¦quot;long-term solution¦quot; for the region, Marek Belka, the director of the International Monetary Fund¦#39;s European department, said in Brussels yesterday. Today the Euro is close to its 14 month low. I hope that Germany dose not have to bail out other members at the cost of reducing services to its own citizens.
16:56 May 11, 2010 by Bushdiver
This whole thing sounds like a real mess if you ask me. Just how is all this bailout money going to stregthen the Euro and bring stability to the Eurozone? This was bound to happen sooner or later that the larger EU countries would have to back the smaller ones. I say forget the Euro and go back to each counrty having it's own currency.
18:35 May 11, 2010 by Californian
I'm no expert on the topic at all, so please feel free to correct me on this.

When Germany gave-up the Deutschmark didn't the German government make a promise to the German people?

Something along the lines of: The German people will not be held financially responsible for other Euro states?

Wasn't this danger a reason the U.K didn't give up its British Pound?

Again, being no expert on the dynamics of it all, it surely does seem that things might be more "Fair" to each country, if they stood on their own two feet financially.

Perhaps Germany could/should reconsider the benefits of having its own "Deutschmark II" back.
18:35 May 11, 2010 by William Thirteen
burping baby angie....
19:01 May 11, 2010 by marimay
OMG that picture is so funny.

She is not lady-like at all.
20:08 May 11, 2010 by derExDeutsche

Yes, I think you're right. A communist would look much Happier!


You may be no expert. But you are making more sense than is allowed on this Blog. This is a blog about Germany. Please try and stay on topic.
20:29 May 11, 2010 by Thames

The German people have been given many promises over the years in order to accept that which is not in their best interest and the Euro was just one of them.

The EU needs to be reconfigured as a simple free trade zone. Scrap the Euro.
21:47 May 11, 2010 by pmach
Speaking about making sense ;

Here are the facts we've been told so far... The European Central Bank (the ECB) will spend $1 trillion (750 billion euro) bailing out Europe's sovereign borrowers (like Greece, Spain, and Portugal). It will also purchase billions of troubled assets from Europe's largest banks ­ like UniCredit. The mechanisms for these purchases will likely be convoluted. The EU treaties contain a no-bailout clause, forbidding any member to "be liable for or assume the commitments of" another EU country. And the European Central Bank cannot lend to countries or buy their debt directly. To get around the technicalities, the EU created an off-balance-sheet entity that will "borrow" the money and lend it to countries in trouble. Whether this matters to the EU's creditors or not, I can't say... but I certainly wouldn't lend to an off-balance-sheet entity of a central bank that's not represented by any country. Buying euros used to be a game of "who owes me nothing." Now, it will be a game of "whose off-sheet entity owes me nothing." I doubt that this will make Europe more creditworthy in the long term.

What does any of this have to do with the U.S. dollar? More than you'll ever hear anywhere else. On paper, the money is supposed to come from Europe's biggest governments and the IMF. But in reality, most of the money will be borrowed from the U.S. Federal Reserve, which just happened to re-open its trillion-dollar swap account with the ECB this weekend. Ironically, the Federal Reserve says these loans are risk-free because the counter-party is a central bank (or at least the off-balance-sheet entity of a central bank). But if the ECB is truly creditworthy, why couldn't Greece, Spain, Portugal, Italy, or Ireland raise the money for themselves?

The plot thickens.
22:44 May 11, 2010 by wxman
What an incredibly bad photo! Merkel looks exasperated and Erkel looks his standard condescending self. It's as though he's saying, "Go ahead, spend yourself into oblivion. It doesn't hurt".
23:37 May 11, 2010 by VelvetHeart67
Obama, "C'mon Angie...all the kids are doing it..."

- I can't believe she caved :(
23:42 May 11, 2010 by Logic Guy
Well, I personally find it very interesting, in how all of those government leaders and financial experts overlook the long-term situation. "Once the struggling nations pay their overdue bills, how are they to repay all of those billions in loans?"

The most intelligent people are proactive, meaning they make decisions to avoid problems in the future. Where are they?
23:49 May 11, 2010 by derExDeutsche
@ pamch

17% is being paid by the US Gvt. through the IMF.

Credit Default Swaps are going through the roof.

We bail them out, then bet against them in Credit Default Swaps.

Get Rich, Baby!
23:54 May 11, 2010 by VelvetHeart67
@ derExDeutsche

Wink! Count me in....
23:58 May 11, 2010 by Beachrider
Hideous picture....

Germany already has a higher national debt that the USA, when it is prorated against GDP. This will push it higher. I don't really see what choice Germany had, short of ditching the Euro or ejecting Greece from the Eurozone. Greece could have screwed the Euro by making further bad decisions without foreign intervention.

It is true that the IMF's $30Bn represents at least $10Bn from the USA, which is already a debtor nation.
06:50 May 12, 2010 by wetdawg~
Obama is going to want to take credit for getting the EU off "dead center" in agreeing to this proposal. Let us (in the U.S.), just hope that he doesn't take the blame when this scheme fails and brings down the Euro and the Dollar with it!
18:35 May 12, 2010 by michael4096
I'm only a poor engineer, so perhaps one of you really clever guys can help me.

Why is there lots of talk about spending money and even printing money when there are only loans being swapped around and the associated interest rates changing.

So one of your family members finally admits that he hasn't only maxed all his credit cards, he lied to get further credit. So, as a good family, you don't let him off but you pay off the debts and make they guy repay you instead of the mafia. That's what families are for.
20:14 May 12, 2010 by JohnnesKönig
@Californian You are right!

@marimay That just about covers it...

More Germans do not want any part of this. She made promises to lower taxes in the last election. She has not kept it. And it shows in the last elections that NRW just had last week!
21:57 May 12, 2010 by kamilkamil
nice photo :)
23:47 May 12, 2010 by derExDeutsche

I think you're on the right track.;)

Only I think the Mafia in this Case has no interest in your family member with the a debt problem. They are coming after you. And when they are through with you, they are going to send your family member a Platinum American Express Card. Billing address, Your House

123 Poor Schmuck Strasse

Berlin, DE

And then the Markets are going to Bet on; If, When, and How Much your Debt delinquent family member is going to send them at the end of the month.

If it wasn't such an inflammatory phrase, I would call it 'Indentured Slavery' in the tradition of the American South.
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