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Merkel pushes euro pact amid credit threat

The Local · 6 Dec 2011, 11:13

Published: 06 Dec 2011 09:13 GMT+01:00
Updated: 06 Dec 2011 11:13 GMT+01:00

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"On Thursday and Friday we will take the decisions which we consider important for the eurozone...," she said in response to a question about the credit warning, referring to a crucial EU summit in Brussels.

This would contribute to stabilising the 17-member eurozone and provide confidence, Merkel said at joint press conference in Berlin with Afghan President Hamid Karzai.

"I have always said it's a long process which will still last a long time. But this path is now mapped out, also yesterday through the meeting with the French president, and we will continue on this path," she added.

The warning that Germany and France and 13 other members of the 17-nation eurozone are now on negative credit watch came from Standard & Poor's credit

rating agency late Monday.

It followed a joint announcement by Merkel and French President Nicolas Sarkozy in Paris that they wanted treaty changes to enforce budget discipline, in a bid to tackle the euro crisis.

But just hours later, Standard and Poor's warned the eurozone members of possible credit downgrades as economic conditions worsen and the region's leadership remains divided over what to do.

Raising the stakes three days before Europe's leaders were to meet to forge a comprehensive fix to the economic crisis, S&P placed the 15 countries on a negative credit watch -- a warning of a possible imminent cut in their sovereign credit ratings.

"Systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole," the ratings agency said in a statement.

It cited tightening credit across the single-currency zone, the rising costs for even the fiscally strongest governments to borrow, and deteriorating economic conditions that could push the whole region into recession next year.

But S&P also blamed "continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis and, longer term, how to ensure greater economic, financial, and fiscal convergence among eurozone members."

The warning threatened a one-notch cut to the hallowed AAA ratings of Germany, the Netherlands, Finland, Luxembourg and Austria.

France, also AAA-rated and the eurozone's second-largest economy, could be hit with a two-notch cut, as could the other countries currently rated below AAA. Cyprus and Greece, their ratings already cut to just above or at junk bond level, were not affected by the warning.

S&P said it would complete a review of the 15 countries' ratings "as soon as possible" following the EU summit in Brussels Thursday and Friday.

German Finance Minister Wolfgang Schäuble said on Tuesday S&P's warning was the "best incentive possible" for this week's EU summit.

"Markets have no trust in the eurozone right now," Schäuble said in Vienna, adding that S&P's move was the "best incentive possible for this week's summit ... I can think of nothing more effective."

S&P called the summit "an opportunity for policymakers to break the pattern of what we consider to have been defensive and piecemeal measures to date, overcome individual national interests and preferences, and advance a credible response to the crisis that would go far towards restoring investor confidence."

Story continues below…

"If the response of policymakers is not viewed by investors as robust, we believe market confidence could take another, possibly steep, drop downwards," that could force a downgrade of the 15.

"The failure to present a strategy that would in scope and content address investors' concerns could weigh more heavily on financing conditions than what we observed in the aftermath of previous summits," it said.

That would significantly raise the risk of recession, the ratings firm added.

French Foreign Minister Alain Juppe said on Tuesday that the Franco-German plan to overhaul the EU treaty was enough response to ratings agency Standard and Poor's warning that eurozone nations faced possible credit downgrades.

Juppe told RTL radio that a plan to toughen EU budgetary rules "is precisely the response to one of the major questions of this ratings agency (S&P) that mentions the insufficiency of European economic governance."

AFP/The Local/mry

The Local (news@thelocal.de)

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Your comments about this article

10:48 December 6, 2011 by storymann
A strong and righteous move.

I would think some nations like Ireland will see this as financial terrorism.This will obligate indebted nations to take out new loans to service old ones,assuring rising indebtedness and harsh adjustments including:

mass layoffs, deregulations,deep social spending cuts,corporate friendly tax cuts,tax increases for working families , breaking up trade unions and a harsh repression against opposition to a system incompatible with social democracy, civil and human rights.

but nobody said it was going to be easy.
13:25 December 6, 2011 by Navigator_B
S&P's warning of a possible downgrade of France and Germany was almost certainly a response to the call few hours earlier from those countries' leaders for greater fiscal union. Too much of a coincidence in the timing. S&P must think that Germany will eventually have to take on the bad debts of other countries and that's one of the reasons why their own debt might be downgraded.

Fiscal union equals downgrade union.

Angela Merkel has been repeatedly ruling out Euro-bonds but she probably means that only for the short to medium term. I don't see how fiscal union is possible without common Euro-bonds.
15:23 December 6, 2011 by luckylongshot
Trying to resurrect the Euro is clearly in the interests of the small group of private banks that retain the power to issue money in the world. The longer it survives the more the wealth of Europe transfers to this small group.

However the interests of the people of Europe are at odds with the efforts to save the Euro. Writing off the debt, Governments reclaiming the right to issue money from the private banks and abandoning the Euro are what is needed to properly fix the problem. Everything else just delays the inevitable collapse.
16:48 December 6, 2011 by derExDeutsche
@ storymann

most of those things you mention will happen regardless of what happens to the Euro. you are in DEBt after all. The bill for European Champagne Socialism was always an eventuality. but Social Democracy? Most EUros traded away their Democracy for 'Social Justice' a long time ago. Now people are realizing that the Promised 'Justice' was never meant to be in their favor at all. How's that for Justice.
11:11 December 7, 2011 by coffejohn
Germany is always boasting about the prowess of its engineers, lets see them square this circle!
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