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Berlin: EU should manage Greek budget

The Local · 28 Jan 2012, 15:24

Published: 28 Jan 2012 15:24 GMT+01:00

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“There are discussions and proposals in the heart of the eurozone, including one from Germany" to "reinforce control over programmes and measures already in place," a European source said.

The source was confirming a report in the British Financial Times newspaper, that Germany's plan was for a commissioner appointed by the other eurozone finance ministers to be able to veto budget decisions made by the Greek government.

The report came as Greek officials were in talks with private creditors on a major debt write-down to avoid a looming default, and ahead of a meeting of EU leaders in Brussels on Monday focused on a new fiscal pact.

"Budget consolidation has to be put under a strict steering and control system," the Financial Times quoted the proposal as saying, adding that it had been circulated by Germany on Friday to officials from other eurozone countries.

“Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time."

The European source said: "A clear priority has to be given to reducing the budget deficit... In Greece, there is a particular problem of a very decentralised budget policy. A constraining legal framework could bring more coherence and ease and accelerate the decision-making."

"External expertise on the ground could be run by European institutions and could also have certain decision-making powers," the source said, requesting anonymity.

But Greece dismissed the idea amid increasing resistance in Athens to demands for ever greater sacrifices.

"There is effectively a 'non-paper' that was presented to the eurogroup," a Greek government source told AFP in comments echoed by others.

"Greece will not discuss such a possibility," said the source. "It is out of the question that we would accept it, these are matters of national sovereignty."

Such a move would "require a change in (EU) treaties."

Greek Education Minister Anna Diamantopoulou, a former EU commissioner, slammed the idea as "the product of a sick imagination" in an interview with Mega television.

Story continues below…

The latest row comes as Greece's three-party coalition, ranging from socialists to the extreme right, is showing signs of cracks under the strain of battling the debt crisis.

The coalition was formed in November after socialist Prime Minister George Papandreou was forced from office for his handling of the crisis.


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Your comments about this article

16:07 January 28, 2012 by murka
Let me unwind my "sick imagination". Germany is not an export economy anymore. It is dwarfed by an industrialized neighbour who is pushing the common currency up by exporting outside the Eurozone. Germany is selling it's agricultural products mainly within the EU, while buying supplies (energy etc.) from abroad. Economy is shrinking, the state goes to the borrowing mode, however the neighbour has much better bonds to offer on the market.

Solution 1: give Germany access to lending mechanisms on the normal rates, to cope with the crisis, which will eventually end.

Solution 2: put a lot of political pressure on Germany, take control of the budget and German state employees, reduce their wages, rise taxes, pension age, etc.
16:11 January 28, 2012 by storymann
What Germany means is that Germany should manage the Greek budget,this is an underlying fear through the Euro Zone, that their sovereignty will be subjugated to the Germans.
19:06 January 28, 2012 by melbournite
Actually the Greek budget isnt just a ledger book to be balanced. Real people's lives are at stake here. Greeks already consider their unelected prime minister a traitor for putting the demands of the banks before the needs of the people. If the Greek "government" hands economic control over to Berlin then I expect people may want to string them up - and rightly so
19:58 January 28, 2012 by Costas
Germans instead of making such audacious proposals and thinking how to economicly conqueer other countries by squeezing and driving people to a war similar poverty, better start thinking how to pay back to Greece WW II Occupation Loan and the War Reparations which amounts over 500 billion euro.

If not the Greek gov., Greek people are already preparing such an official claim.
20:25 January 28, 2012 by HelloOutThere
@ Costas:

The Greeks seem to have forgotton the fact that in 2008 right before the financial crisis broke out Greece was the nation in the European Union that by far received most money in the transfer union while Germany was the nation which by fair paid most money in this transfer union. Therefore billions of Euros flow from Germany to Greece.

The Greek people should be grateful to Germany and the German people that they did not let them down immediately and did not only guarantee for Greece, but actually already paid some hard money. Nevertheless unfortunately many Greeks still don't seem to realize in what situation they are at the moment and that they are completely depended on their European neighbours, especially Germany.

But it's always easier to have a punching bag instead of admitting your own faults.
20:38 January 28, 2012 by HelloOutThere
@ Costas: Moreover where did you get the figures of 500 billion Euros from? As far as I know the amount is estimated to be around 70 billion Euros.

I'm sorry, but Germany can not be held responsible for the fact that Greece did not have a working administration and did not have a competitive economy.
20:40 January 28, 2012 by Costas

ever think german gov. wud hv given money to somebody without taking bonds or other securities.

any case matter is simply logistical/figures and is time to put down numbers and see how much we owe to each other
20:46 January 28, 2012 by HelloOutThere
@ Costas: In fact the "hard" money given to Greece via the transfer union is actually "lost". There are no securities or anything like that.
20:48 January 28, 2012 by Costas

just bcs u asked

Greece was looted and devastated by the Germans as no other country under their occupation. The International Red Cross has estimated that between 1941 and 1943 at least 300,000 Greeks died from starvation ­ the direct result of the plundering of Greece by the Germans. Mussolini complained to his minister of foreign affairs Count Ciano ¦quot;The Germans have taken from the Greeks even their shoelaces¦quot;.

Germany and Italy, in addition to charging Greece exorbitant sums as occupation expenses, obtained forcibly from Greece a loan (occupation loan) of $ 3.5 billion. Hitler himself had recognized the legal character of this loan and had given orders to start the process of its repayment. After the end of the war, at the Paris Conference of 1946 Greece was awarded $ 7.1 billion, out of $ 14.0 billion requested, for war reparations.

Italy repaid to Greece its share of the occupation loan, Italy and Bulgaria paid war reparations to Greece, and Germany paid war reparations to Poland in 1956 and to former Yugoslavia in 1971. Greece demanded from Germany payment of the occupation loan in 1945, 1946, 1947, 1964, 1965, 1966, 1974, 1987, and in 1995. However, Germany is consistently refusing to pay its obligations to Greece arising from the occupation loan and war reparations. In 1964, German chancellor Erhard pledged repayment of the loan after the reunification of Germany, which occurred in 1990.

Indicative of the current value of the German obligations to Greece are the following: using as interest rate the average interest rate of U.S. Treasury Bonds since 1944, which is about 6%, it is estimated that the current value of the occupation loan is $163.8 billion and that of the war reparations is $332 billion. The French economist and consultant to the French government Jacques Delpla stated on July 2, 2011, that Germany owes to Greece 575 billion euros from Second World War obligations (Les Echos, Saturday, July 2, 2011). The German economic historian Dr. Albrecht Ritschl warned Germany to take a more chaste approach in the euro crisis of 2008-2011, as it could face renewed and justified demands for WWII reparations (Der Spiegel, June 21, 2011, guardian.co.uk, June 21, 2011).

The Germans did not just take ¦quot;even their shoelaces¦quot; from the Greeks. During WWII Greece lost 13% of its population, some of it in battle, but mostly from the famine and from German war crimes. The Germans, murdered the population of 89 Greek villages and towns, burned to the ground over 1,700 villages and many of their inhabitants were also executed, they reduced the country to rubble, and looted its archeological treasures.
21:03 January 28, 2012 by HelloOutThere
@ Costas: I know these facts, but nevertheless the sum is estimated to be around 70 billion Euros.


As I already stated billions of Euros have already flown from Germany to Greece via the European transfer union and in the last four years via the attempt to save Greece from becoming bancrupt.

Nevertheless the injustice commited by the Germans on the Greek people can not be held responsible for the situation we do now experience in Greece. It would not have been different if the money (not depending on how high the sum actually is) would have been paid to Greece much earlier.

Greece did not have a working administration (they did not even know how many people actually worked for the Greek state for instance) and they did not have a competitive economy (they did not invest in modern machines for instance).

Bringing WWII into the entire dicussion is a cheap attempt of the Greek people to deflect from their own faults.
21:12 January 28, 2012 by ovalle3.14
While I find the idea of a EU-administered Greece, I do see why this is happening: the EU is not for everyone! Let's accept that and act accordingly.
21:15 January 28, 2012 by murka

Germans are paying the transfer money not because they are so kind, but because they are in the currency union and must balance out the trade disbalance - much the way it is done inside Germany (fiscal equalisation). Apparently, it was not done sufficiently.
21:20 January 28, 2012 by Costas

It is not a cheap attempt, it is very reallistic and proper.

When you are in need, you are asking from those who owing to you, in order to pay back.

ofc we hv the most corrupted politicians but tht things work on both ways. must also be and the other party corrupted to bribe them for making bussiness. Hope u know wht was hpng with siemens, submarines, railways and trains(wagons width different fm railways opening)etc. rascals paradise
21:24 January 28, 2012 by HelloOutThere
@ murka: Of course the Germans did not pay the money because they wanted to be nice to the Greek people and other nations. As I already stated in a different comment to a different topic Charles de Gaulle once said that there are no friendships between states, only interests.

But it does not matter WHY the money has flown from Germany to Greece (or any other country within the European Union) it just matter that it has ACTUALLY flown from one state to another.

And I disagree, it was done sufficiently, but unfortunately the Pi(i)gs used to live way over the top. Taking into consideration how many people live in Greece they had way too much civil cervants, for instance. And I think we will both agree that this is certainly NOT Germany's mistake. :-)
00:46 January 29, 2012 by ChrisRea
If the rulers of my country would show such a lack of integrity as the one Greece had (has), the corruption would be so largely spread and the tax collection so ineffective as in Greece, I would be happy to have somebody serious vetoing the national budget decisions.

History had shown that even getting a foreign, but devoted ruler leads to positive results. Carol I of Romania (maybe a coincidence: he was a German prince) was one of the best rulers Romania had (if not the best). During his 43-year ruling as a king, he helped Romania obtain its independence and had modernised it economically and politically. He was (and still is) so loved, that in 2006 he finished second in a large poll about the greatest Romanian of all times.
11:18 January 29, 2012 by storymann
Greece got itself into this financial mess by lying and fudging it's way into the Euro Zone, but the EU did not do a due diligence as they should have.This is all water over the dam now.Greece will not be able to turn this around by austerity measures alone.The people are the victims not the perpetrators and they are stressed enough. The only solution other than pouring good money after bad is to have them leave the Euro zone.

Germany is totally for Germany, Mrs Merkel made that very clear,and is not renown for it's benevolence. Saying Iam from Germany and I am here to help you reminds one of I am from the Government and I am here to help you.
11:47 January 29, 2012 by HelloOutThere
@ storymann: What countries are really known for their benevolence? The U.S., the United Kingdom, China, Russia, France? Even the help Germany received from the United States of America shortly after the Second World War was not done due to pure philanthrophy, but in order to prevent Germany's political system from once again becoming a ruthless dictatorship and to establish a strong counterbalance to the former Soviet Empire plus having a reliable trade partner for the future.

The entire European Union and Eurozone was based on the idea that its members would benefit from creating a common market/currency.
13:00 January 29, 2012 by narfmaster
There is a very large issue here which needs resolving and Greece was simply the first country to step in it: When there is a currency union, there are great economic benefits BUT all countries in that union affect each other economically. If any country is not keeping its economic house in order, then all countries in the union are hurt. Greece, as did all of the other countries, joined the union because they wanted the economic benefits. But by doing so, there is an inherent responsibility. The problem is that no system is in place to handle when a country does not live up to that responsibility. If Greece had been acting responsibly, some other country would have been the target of criticism. It was really only a matter of time for this fault in the system to be made obvious.

So, this crisis was bound to happen because the system is missing key pieces. The question is, what to do about it? If I joined a club or a timeshare and didn't pay my dues, you could of course kick me out. However, you don't want to do that. You want to garnish my wages because everyone benefits from having me in the club and being a paying member. The same is true here. Germany's proposal is very much what you would expect in that situation. They are saying that Greece will be economically responsible, whether they want to be or not, as they signed up for the currency. They made promises that they have to keep. In the long run, this is good for Greece, Germany, and everyone else in the union. The idea, which really is implicit in a single currency among nations, is that every nation watches every other nation in the union to be sure they are fulfilling their obligations. Is it giving up economic sovereignty? Absolutely, but only after the nation has proven that their leaders are no good at economics. This hasn't been talked about yet, but there will also need to be some kind of handover period back to the nation in question when the economy is fixed. It should be a temporary punishment, not a permanent takeover.

It should also be noted that this is the reason the UK would not join the Euro currency. Not the crisis, but the punishment. They don't want Germany telling them what to do. They also know that they tried this before, and they failed (Black Wednesday in 1992). Their leaders are crap at controlling spending and inflation (explained as "our economy works differently") and they know full well they would be the humiliated country needing a slap on the wrist. They also seem to think that with free trade and open markets, they get most of the benefits anyway without the shame. However, it is my firm belief that when the correct punishment mechanism is in place in the EU, those countries will all be forced to do the best they can economically and, with a single currency between them, will leave the UK in the dust. Such is the cost of pride and the ability to shoot yourself in the foot as much as you want.
13:46 January 29, 2012 by HelloOutThere
Most likely Greece will either be forced to step out of the Eurozone or they will not receive any money anymore so that they will evetually go bankrupt. The states are well aware of the bitter consequences, but it's better to get unpleasent things over and done with. The only reason why they try to make the markets believe that Greece will be saved is that they still need time to prepare themselves (and Greece) for the consequences.

Note: In post #18 I meant philanthropy.
13:53 January 29, 2012 by storymann
I write my own opinion you do not have to agree with it..

all i see here is your comments about what other people write .you yourself have little or nothing of value to add.i suspect from your English usage that you are German.

ou should find a german speaking forum where you and your ilk can hum deutschland uber alle.It's not anyones fault that the nation you defend has had a history of agression either military or financial towards your neighbor who for the most do not trust you.

I am not interested in anything you have to say. So if I don't respond to your never ending verbal diarrhea its not because I think your assessment is correct.
13:55 January 29, 2012 by Englishted
It was not the behaviour of the eurozone's southern members that first plunged the single currency into crisis.

There was, from the beginning, a way for the EU to police the economies of member states by following the rules that had been laid down for the single currency in the Maastricht Treaty.

It was called the Stability and Growth Pact, and it was not Italy or Greece that torpedoed it - it was Germany.

In 2003, France and Germany had both overspent, and their budget deficits had exceeded the 3% of GDP limit to which they were legally bound.

What happened?

Nothing no fine no imposition of the E.U. control of the economy why not?

Does the hypocrisy have no bounds in the E.U.
14:02 January 29, 2012 by raandy
@hello out there get a life will ya , I am also tired of reading you sh^t.
16:17 January 29, 2012 by ChrisRea
@ HelloOutThere

Your points are correct and I like that you support them with facts, not with subjective/far-from-reality statements.

Do you think that the special EU summit of tomorrow will bring any progress towards EU members committing to stricter fiscal rules? What should we expect from Greece?
16:34 January 29, 2012 by HelloOutThere
@ storymann and raandy:

Thank you very much, I actually have quite a good life and I suppose that you don't even know that this phrase was originally not intended to express German superiority, but to express that every German should use his best endeavours to unify the German states to become one entitity.

To be honest I don't really care what you think about me, Germany, the Germans and everything which is related to Germany.

Everyone has the right to express her or his opinion and that's exactly the same for me no matter whether you or anyone else like it or not:

storymann, I have read your racist remarks on the article concerning the German engineer in Nigeria and throughout the last couple of months I have come to the conclusion that thelocal.de has in deed become a forum for those who tend to have very strong anti-German sentiments for whatever reasons.
16:41 January 29, 2012 by Zyezxe
Correct me if I'm wrong, but I was under the assumption the only thing that held the Euro back was Germany's insistence on keeping a tight control over inflation. In other words, if the Euro was modeled after the German economy ... tight control over inflation ... they would accept a seat at the table. Once that hurdle was set in place, everyone agreed to it. So why all the whining? To become an EU member meant you agreed with the German condition for acceptance ?!?!?!

Another thing, this isn't so much the draconian German measures to get the PIIGS back on track .. as the PIIGS say ... it's about the lowering of credit once one became a member of the EU. That's the real problem that's unchecked ... the public went crazy with what they viewed as free cash and overspent their wealth. In Greece for example, credit was about 18% before they entered the EU. Once in, credit dropped to the 4% to 5% range ... bond traders assumed independent sovereign debt was bound to the EU. It was like someone opened the doors to Fort Knox and provided free wheelbarrows and armed escorts. Not only that, but sovereign governments got into the borrowing frenzy too .. too much cheap money begging to be borrowed and spent. Yet no thought was given to how those borrowed funds would be repaid ... and that's where we are today.

To me it sounds like the PIIGS needs to be scolded by an adult then sent to their rooms.
16:57 January 29, 2012 by HelloOutThere
@ ChrisRea:

No, I don't think that the summit of tomorrow will bring any progress, but I may be wrong. What we should expect from Greece? Nothing! They have not done anything in the past to really improve their situation and they will not do anything in the future to really improve their situation. Paying more and more money, cutting debts or establishing bonds will have no or little relevance when the Greek people are not shown how to establish a working administration (recently even the OECD stated that they don't think Greece has the competence to establish a working administration) or a competitive economy. As long as this does not happen every single cent paid to Greece will be lost.
17:39 January 29, 2012 by Englishted
The Maastricht Treaty.(Stability and Growth Pact)

Inflation: No more than 1.5 percentage points higher than the average of the three best performing (lowest inflation) EU member states

Annual government deficit: No more than 3% of GDP

Government debt: No more than 60% of GDP

Exchange rate: Must be a member of the European Exchange Mechanism for at least two consecutive years, with no devaluations during that time

Long-term interest rates: No more than 2 percentage points higher than in the three lowest inflation member state

I ask again when Germany and France broke the rules of the above why did nothing happen?

Answer is simple they are the big boys of the €uro and are now trying to bully smaller countries to abide by rule that they ignored, a dangerous president was set when the elected leader of Greece was removed ,now by taking over the financial controls it is tantamount to overthrowing the complete elected government of a sovereign nation.

Democracy is on a slippery slope in Europe and remember where that led last time.
18:00 January 29, 2012 by Zyezxe

Excellent post and good talking points to chew on. As I see it, the PIIGS were too eager to enjoy the lower credit rating EU membership offered all the while neglecting to hold the line on their ability to rein in both public and government spending ... usually accomplished by raising taxes to minimize borrowing to keep inflation in check.

While some may question Germany's influence in steering the dialogue, everyone seems to forget, since nature abhors a vacuum, so too does an economy ... eventually something will fill the vacuum. If other EU members are concerned with Germany''s leading role, then perhaps they should address the current short-comings of the treaty with a mechanism all parties to the treaty agree with that doesn't pit one sovereign nation's interest against another.

As it now stands the German lead may be a bitter pill to swallow for some, but at least it is a cure to keep the EU afloat rather than leaving it to market forces letting the issue rot on the vine and taking everyone down with it.
19:01 January 29, 2012 by McM
Great idea,veto powers over budget submissions .....I think all Eurozone currency members should be subject to budget control including Germany. Perhaps the Brits could act as the independent budget auditors seeing as they are not in the eurozone but are EU members with their huge financial center and expertise . Obviously the Eurozone members big and small don' have a clue and are too busy fighting among themselves to be objective. Bring in outside control for all euro currency users and stop the rot in Brussels pathetic parliament. I am not a Brit nor for that matter a European so I have no vested interest in it. It just looks a bit sad to outsiders the way the members states are all turning on each other when the going gets tough.
19:19 January 29, 2012 by haris7767
Perhaps they would like to sleep with our wives too.

A Greek.
19:49 January 29, 2012 by Costas
article missing to also refer on para(1) whc is the worst of this "compliance" say dictatorship , reminding to oldest of us the the plundering of Greece by the Hitler.

Here are the exact demands by Germans


1. Absolute priority to debt service

Greece has to legally commit itself to giving absolute priority to future debt service. This commitment has to be legally enshrined by the Greek Parliament. State revenues are to be used first and foremost for debt service, only any remaining revenue may be used to finance primary expenditure. This will reassure public and private creditors that the Hellenic Republic will honour its comittments after PSI and will positively influence market access. De facto elimination of the possibility of a default would make the threat of a non-disbursement of a GRC II tranche much more credible. If a future tranche is not disbursed, Greece can not threaten its lenders with a

default, but will instead have to accept further cuts in primary expenditures as the only possible consequence of any non-disbursement.

2. Transfer of national budgetary sovereignty

Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralized reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritize debt service.
19:59 January 29, 2012 by ChrisRea
@ McM

You might not be aware, but the tighter fiscal control talks are not only about Eurozone, but about all EU countries. Given the increasing economical integration of EU members, even if a non-Eurozone country is in trouble, the rest of the EU (including Eurozone members) will be affected.

The idea with the independent auditors is very good and it is exactly what EU intends to do. It is already implemented for other sectors of public policy and, if it would have been in place for the national budgets, the fiscal problems with Greece would have been detected before the country was allowed to join the Eurozone.

"Obviously the Eurozone members big and small don' have a clue and are too busy fighting among themselves to be objective."

Really? You think that there is a lack of expertise and not about government politics? You might also want to distinguish between fight and dialogue.

"It just looks a bit sad to outsiders the way the members states are all turning on each other when the going gets tough."

Funny - I had the opposite impression. For example Germany and France, two traditional enemies, are working together more than ever (see the approach to the financial transaction tax). Regarding tighter fiscal rules and control, most of the EU members (again, it is not only about Eurozone) are following suit (some have actually already implemented them). It is only UK that puts itself away from this prudent European approach. I hope however that time will convince them to reconsider.

It is definitely not easy to get the agreement of so many countries, each with a government with its own agenda. But that's nothing new, it was the same from the beginning of the EU. The integration was however advancing step by step and the benefits started to appear. Of course, there is still a lot to go and many lessons to be learned.
04:04 January 30, 2012 by Ricktanner
I fully agree with Germany. It makes sense if you know that the person you are handing your money to is a recalcitrant.

Put simply - if someone approaches you on a loan, and if you know that the person have a reputation to spend recklessly and not repay you, would you lend to him?

Greece has a choice. If they cannot accept the rules set by Germany, then they shouldn¦#39;t borrow. No one is forcing them to borrow. They can¦#39;t blame Germany for not trusting them. Elementary Watson, elementary.
07:50 January 30, 2012 by McM
As I understand it there are 27 Members in the EU not just 2 as the Danes so recently pointed out.They actually said they want an EU not an E2 in reference to to provincial bullying of the big 2 .What Germany does with France is all very nice to show solidarity before Sarkozy goes to the polls but the idea that a FTT will solve all in Greece and Europe is a sad joke when the majority of the G 20 think it's a bad idea . The bankers will just glide elsewhere like they always do.

If the 27 EU members can pull off an agreement to monitor all Eurozone budgets including Germany and France or better still all EU members, respect. Then we may see some real management and less verbal brawling and lame blame hype via their respective media fronts.
10:24 January 30, 2012 by ChrisRea
@ McM

I am glad you finally realised that most of EU countries are rallying around the treaty for tighter oversight of the national budgets. All 17 countries in the Eurozone already signed it in December last year. Other 9 non-Eurozone EU members are preparing to sign it as well (that's why they meet informally today and formally early February). So it is only UK left as a lone holdout. Hopefully they will think again.
11:04 January 30, 2012 by jg.
If the UK is to sign any new treaty or agree to amend existing treaties that pass additional powers to the EU (such as an EU veto of national budgets), then the European Union Act 2011 requires that the matter is the subject of a referendum. Cameron is not in a position to rubber stamp any such treaty on behalf of the UK.

Any treaty modifications which attempt to use any EU entities (funded by 27 members) to bailout only the Eurozone (17 members) is likely to fall under the same UK legislation.
13:29 January 30, 2012 by McM
Oh..and what about the Danes position on holdouts for example and what their PM just said?? No lets not go there, that may be a distraction from the provincial scapegoat agenda surrounding all this . Its a bit like poker, those with the nerve can often bluff out a few wins for their respective countries before the unity crunch sweeps them all away as one big happy family. I love it.

Ah, "aint it grand the way that money gets people talking together" So many excellent posts on this one. Who controls the purse string???? certainly gets us all ranting and raving at our best. Keep up the good work posters.
19:02 January 30, 2012 by ChrisRea
@ McM

What are you talking about? Can you please post a link? The latest things I heard about Ms. Helle Thorning-Schmidt is that she supported the new european fiscal agreement in front of the Danish Parliament and that on Thursday she said that EU is an achievement Europe should be proud of.
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