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France reportedly threatened to ditch euro

AFP/The Local · 14 May 2010, 18:50

Published: 14 May 2010 11:31 GMT+02:00
Updated: 14 May 2010 18:50 GMT+02:00

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The claim came as European Central Bank President Jean-Claude Trichet pointedly suggested Germany should take a leadership role in ensuring the fiscal management of its neighbours in the wake of the Greek crisis.

According to El Pais newspaper, Spanish Prime Minister Jose Luis Rodriguez Zapatero told a meeting of his Socialist Party this week that Sarkozy had made the threat at a Brussels summit of EU leaders last Friday, at which the deal on a rescue package was sealed.

Spain, France and Germany all denied the report, but it increased investors' concerns over the euro single currency, which plunged to an 18-month low on Friday.

Germany, Europe's biggest economy, has been the most reluctant euro nation to help the Greek government.

However the French president demanded "a commitment by everyone, for everyone, to help Greece, each according to his means or France would re-examine its situation in the euro," Zapatero was quoted as saying.

"Sarkozy banged his fist on the table and threatened to withdraw from the euro, which twisted the arm of Angela Merkel," a Socialist official who heard Zapatero's account was quoted as saying.

The Brussels summit finally agreed a €110 billion, three-year package of loans and credit guarantees for Greece, which had risked defaulting on its huge debts.

"France, Italy and Spain put up a common front against Germany and Sarkozy went so far as to threaten to break the traditional Franco-German axis," according to another person at the meeting. France and Germany are traditionally considered the central motor of EU initiatives.

Spain and Portugal also face major debt problems and Zapatero announced new austerity measures on Wednesday.

Meanwhile Trichet, the French boss of the ECB, told financial daily Handelsblatt that Germany was an example of fiscal responsibility and therefore was well-placed to perform a monitoring role of other European nations. He said the ECB, the International Monetary Fund and the European Commission would all be watching closely to make sure Greece stuck to its promised austerity measures, but national governments – notably Germany – also had to play their part.

“Germany is the largest economy in the euro area and a country which has a tradition of sound fiscal management. I count on the very active role of all countries including Germany insert the function of surveillance,” Trichet said, according to a transcript of the interview posted on the paper's website.

Story continues below…

Trichet also dismissed suggestions that the bank’s decision to buy government bonds might spark inflation.

The ECB announced Monday that it would buy government bonds, which helped calm markets jittery about the continent's debt crisis.

Asked whether the 16-nation eurozone has to face inflation as a result of the bond purchase program, Trichet replied: "No, not at all."

AFP/The Local (news@thelocal.de)

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Your comments about this article

11:57 May 14, 2010 by pepsionice
I'm of the mind that the story is bogus. However, if true....you have to imagine that Merkel has twenty smart folks working on the plan for Germany to bring back the D-Mark. If you look at the deal mentioned so far....it's an installment plan situation. Greece gets some money at certain points (what the media has said). Merkel might be buying time and just waiting to have enough D-Marks to say adios to the Euro. Maybe?
12:23 May 14, 2010 by tallady
The story could be over or understated,,however, there is a thread of truth running through it. .Germany does have to step up to the plate, very unpopular stance with the people ,hence Merkel's reluctance at moving to fast. I would think she has 20 people working on how Germany can institute policies of financial reform for Gov. like Greece,so that this dosnt happen again.I think that Germany is the only country to have the potential to bring around true financial regulations for the Euro zone.It has proven over and over to have the most stable and prudent Gov. There is no going back on the Euro ,,we are globalized now ,like it or not we can no longer survive alone as individual countries with different currencies. I believe she will step up to the plate but will want a lot for her money in reforms and guarantees for better financial policies ,she has stated "that we must tackle this problem at its roots" and that is correct. It's going to be a hard sell and the Germans never make quick decisions ,more likely they will move faster only when the regulations are reforms are in place.
18:11 May 14, 2010 by grazhdanin
maybe one should use the term 'crisis' more often, in order to let articles appear even more interesting
18:23 May 14, 2010 by Bushdiver
I for one am willing to go back to the D-Mark. It was a mistake to begin with switching to the Euro. If we do go back to the Mark let's see if we get screwed again on the exchange rate.
18:46 May 14, 2010 by richard_vijay
Germany should follow suit and ditch the Euro and briang back the Deustch mark.As for the french...croak weebt...croak weebit.
00:51 May 15, 2010 by Prufrock2010
Sarkozy had it right for a change. France should have pulled out of the euro zone. Why should France (or Germany) support a corrupt, profligate nation like Greece, to the derogation of their taxpayers? But the weakened euro helps German exports, not German citizens, so Merkel had to yield to her true constituency -- German industrial interests and German banks. The euro is a failed experiment, and I predict it will be an artifact of the past within 2 years.
07:15 May 15, 2010 by Volatile Barry
I wouldn't be surprised if this were true as French banks hold a large proportion of Greek debt. It's not Greece that's getting bailed out here, it's the banks that lent to them once again being bailed out by the taxpayer should Greece default.
10:39 May 15, 2010 by Fatz Lewinski
>> "The euro is a failed experiment"

Naive statement to say the least. For the first time in currency history, more people were you using another currency than the US dollar and the investment in Euro followed. Companies saved billions across the region as currency fluctuation is no longer an issue. This is merely an unfortunate teething problem brought on by incompetent Greek politicians and weakened Euro watch dogs. The one thing that the "stronger states" have learned is that the people will vote against this (example: NRW) and becuase of this the watch dogs will be strengthened. I've been hearing stories that "Ireland will follow" since Iceland collapsed but Ireland and Spain and Portugal seem to have held it together (no doubt with some behind the scenes aid). The Euro is one of the most positive things that the EU has created and long may it reign.
15:21 May 15, 2010 by Prufrock2010
Fatz --

Hardly naïve, as recent events have demonstrated and future events will confirm. You are correct that the euro provided some great short term benefits by eliminating currency fluctuation throughout the euro zone. But the formulation of the euro failed to anticipate a default situation by one or more of the weaker member nations, as we are now witnessing, and thus failed to provide a mechanism to handle such a crisis ahead of the curve. A glaring oversight, to be sure, resulting in unintended consequences that may be impossible now to correct. Greece has taken advantage of the "too big to fail" paradigm at the expense of those of us in Germany and France, in particular, as well as the rest of the European Community. Most reputable economists believe that Greece will suffer, as Nobel Laureate Paul Krugman puts it, "years of grinding deflation and low or zero economic growth." And no credible commentator seems to believe that Greece will ever be able to repay the trillion dollar bailout. That leaves us, the taxpayers, to pick up the tab for Greece's profligacy, as heavily leveraged banks holding Greek bonds will inevitably resort to their respective governments to hedge their losses.

If past is prelude, expect Portugal, Spain and Ireland to queue up behind Greece. I dispute your optimistic assertion that "the watchdogs will be strengthened," as the watchdogs are not only toothless without meaningful regulation in place, but are also deaf and blind. The Greek fiasco didn't materialize overnight. The fraud has been known to Eurostat for years, and still nothing was done to forestall the economic tsunami in Greece that is now everyone's problem. Currency speculators, investment banks and hedge funds that have been attacking the euro will make out quite nicely by shorting it as long as there are no regulations in place to curtail their activities. Since there is no political will in Europe or the United States to rein in these financial marauders, nothing will change except the decreasing value of the euro and the pain inflicted on our pocketbooks. If I'm naïve, so be it. I get paid in dollars.
15:39 May 16, 2010 by hanskarl
The dropping of the Euro and dismantling of the EU would be the best thing to happen to Europe. So many of the people have lost so much more of their personal liberties.
17:07 May 16, 2010 by wenddiver
We screwed up, now give us money to fix it, or we will run away!

Anybody who thinks you can give in to those kinds of threats has obviously never lived in a house with a teenager.

To give in, is to shift the moral dominance within the Union to France.

Rather than cutting the bums loose and going back to a strong D-Mark, the bureacrats will prop up the dysfunctional EURO.

We have a phrase for this in he Southern half of the US a "Tar Baby".
18:17 May 16, 2010 by Prufrock2010
wenddiver --

"To give in, is to shift the moral dominance within the Union to France."

What is that supposed to mean -- "moral dominance?" And what's your dog in this hunt, from the southern half of the U.S.? Just curious.
19:13 May 16, 2010 by wenddiver
Profruck- I own stock in several German companies, I invested in Germany in hopes they would do intelligent things and make me money on my investments. Needless to say I preferred my investments in D-Marks to Euros as I would not take France, Potugal, Italy, Greece or Spain on as a partner, yikes.

As for the Southern half of the US, I think tax wise it is the place to be:

State taxes:

Mississippi-After bussines credits paid me

Alamama-After business credits paid me

Florida-No state tax

Texas-No state tax

Georgia-You guessed it NO STATE TAX!!!!!!!!!!!!!!!!!!!!!!!!!!

All have great business relocation plans just ask SIEMENS, DAIMLER-BENZ, BMW, etc.

What's your dog, practicing your English in case the STASI start hiring again.
20:54 May 16, 2010 by Prufrock2010
Looks like your investments in German companies might be struggling a bit. That's a shame. But I agree that the southern half of the U.S. is the best place for you to be. You're in good company with all the people who expect government services to be provided for nothing. I'm particularly amused by Americans who bitch about taxes when the U.S. has the lowest tax rate in the developed world. You should try paying taxes over here sometime. And I don't need to practice my English, thank you. It's at a much higher level than yours. (Hint: you might learn to spell and punctuate).
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