Euro in peril, warns Merkel
German Chancellor Angela Merkel called for tougher regulation aimed a stock and bond traders along with a crackdown on government debt to contain the continent's financial crisis, warning the future of the euro itself was at stake.
As she urged lawmakers to pass Germany's share of a new 750 billion euro (£651 billion) eurozone rescue package, Mrs Merkel said that defending the shared European currency is "about no more and no less than the preservation of the European idea".
"That is our historic task; if the euro fails, then Europe fails," she told the lower house of parliament today. "The euro is in danger - if we do not avert this danger, then the consequences for Europe are incalculable, and then the consequences beyond Europe are incalculable."
Mrs Merkel's warning follows Germany's decision on Tuesday to ban so-called naked short-selling of eurozone government debt and shares of major financial companies in an attempt to ward off steep market drops.
Naked short-selling involves traders selling shares or investments they don't hold in hopes of buying them cheaper later; it's a way of betting a financial asset will fall in price and profiting from the fall.
Germany's roiled financial markets, in part because it suggested to traders that policymakers were grasping at straws to stem the crisis of confidence over the ability of European governments to pay off their heavy debt loads amid slow growth.
Fears that some governments may eventually fail to pay all they owe, or will have to cut back so severely that they sink their economies into prolonged recessions, have weighed on stocks and led to discussions that the 11-year-old eurozone will someday break up. The one trillion dollar backstop is an attempt to calm those fears by removing the possibility of imminent default, though it does little to address the underlying debt issue.
Politicians have also roundly condemned "speculators" for selling off government bonds, which drives up their borrowing costs and makes it even harder to keep their finances under control. But many analysts say the real problem is simply too much debt.
Still, Europe is showing a new-found resolve to strengthen its regulatory grip. On Tuesday, European Union governments agreed to tighten rules for hedge funds, lightly regulated investment funds that cater to rich and institutional investors and promise high returns from often complex trading strategies.
Citing the short-selling restriction, Merkel said Germany will act alone in areas where that causes "no damage," and said the ban would remain until wider European rules are drawn up.
Germany, Europe's biggest economy, is to contribute at least 123 billion euro in loan guarantees to the new rescue package. Parliament is expected to vote on Friday - just two weeks after approving a separate package for Greece, already unpopular at home.
In Paris, French Finance Minister Christine Lagarde said her country would provide loan guarantees of up to 111 billion euro, with legislation going to parliament on May 31.
Mrs Merkel stressed that aid decisions will need unanimous approval from all involved and that, where credit is from other governments instead of a common European pot of money, "we decide ourselves on every use of the funds".
The head of Germany's central bank, the Bundesbank, called for speedy approval this week of the package to calm markets. Axel Weber told parliament's budget committee that access to rescue funds should only be possible if the financial stability of the whole eurozone is at stake.
While the root cause of the debt crisis was insufficiently competitive countries living above their means, Mrs Merkel said, markets poured oil on the fire.
"We are now seeing anew how, through a lack of limits and rules, purely profit-oriented behaviour on the financial markets can be destructive," Mrs Merkel added. "It is the task of politicians, parliaments and governments to intervene, to regulate, in case of doubt to ban in order to keep the risks controllable."
Mrs Merkel renewed a pledge to push for taxation of financial markets - either a financial transaction tax or another form of levy - in Europe and beyond. She also pushed for quick action to put ratings agencies under European supervision and increase transparency on derivatives markets.
The chancellor acknowledged that Berlin faced accusations of being "hesitant or slow" in agreeing rescue packages for debt-laden European nations, but was unapologetic about pushing for them to be made to tackle their budget deficits.
"Europe needs a new culture of stability," she said, with faster and more effective punishment for countries that habitually run excessive deficits.
Those could include withholding European Union structural funds and temporarily withdrawing voting rights from repeat offenders, she said - adding that it was important to draw up procedures for an "orderly state insolvency."
Above all, though, Mrs Merkel said all EU members must speed up cutting their deficits.
"Only then can the rescue attempts be effective, because continuing to cover up the real causes of the crisis wouldn't help Europe," she said. "Germany advocates lasting stability in Europe - we're not going to spare anyone in Europe from that."
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Joe Fenech
May 20th 2010, 09:56
I've lived in the EU countries since its dawn but have increasingly lost faith in its future. The EU can never work since it has increasingly become a club in favour of multi-nationals who now find it very easily to relocate to other EU zones where salaries are 1/3 of those in their country of origin.
The EU will only work when it has a uniform minimum wage, laws, political thoroughness, infrastructure, and standard of living.
R Grima
May 20th 2010, 09:52
The European President said yesterday the Euro was safe and in good hands..have I heard that before somewhere?.. and Now Ms Merkel says the Euro is in peril.. which is it? Personally I think the Euro is in peril and Angela is dead right,h as is the dollar and sterling...look east young man..that's where it's happening. We had our chance but looked west.
laurence schembri
May 20th 2010, 09:50
@ Carmel Cilia
Beg to differ. What happened in Iceland was pure greed by the Banks, nothing to do with the Euro i.e. the global rescession, it was purely greed of Banks and money speculators. It started again today in Germany, let us hope that Angela Merkel will put a stop to it.
Muscat Pat
May 20th 2010, 09:17
Kemm qalulna li imnalla ghandna l-Euro! 372 million euros down the drain. Gibtuna Griegi, id wahda quddiem u tnejn wara...jekk iservu tnejn!
Carmel Cilia
May 20th 2010, 08:19
So the best thing that could have happened to these island was joining the Euro. So Iceland had all that economic trouble because it was outside the Euro. So Greece was fortunate in having the Euro because it is receiving billions in aid. I wonder why switzerland did not join the Euro, I do hope our politicians know what they are doing. I do hope that one's life savings are not thrown to the wind. Any more reflections please.
g.c.Forte
May 20th 2010, 08:45
Any more reflection please.................Yes........Kif konna ( bil lira Maltija ) nafu............kif gejjien ma nafux..........Jekk inharsu lejn il Grecja, ma tanc hemm affarijiet sbieh lesti ghalina. Ma ninsewx li diga qeghdin jissemew tlett pajjizi ohra fl`inkwiet, bhal tal Grecja.
laurence schembri
May 20th 2010, 01:50
@ m. farrugia
What sort of an inane comment is that. If the Euro falters we are all in the sh**t!
laurence schembri
May 20th 2010, 01:42
If any of you commentators recollect, I made this prediction a week ago, before Angela Merkel, where I said; that once the mighty Dollar will gather strength the Euro will be in trouble. $1.22 to the Euro, soon will be on par. Greece is only a small part of this.
malcolm seychell
May 19th 2010, 23:15
This is just the start of the collapse of Europe.
The recession haven't even started yet. What happend in the past months is that billions of money have been put in the market., stocks, loans, etc . Real money comes from real work and not from printing money.
At the end human nature will rule again. The germans are having enough subsidizing everyone. and who can blame them?
The germans do not need europe. Together with a friendship with Russia they can live easily till the end of the world.
sandro pace
May 19th 2010, 22:38
What an assertive speech. Merkel is probably the best leader in the EU. Yes for help, but yes also for "punishing" those who skip the line. Help without "punishing" does not ensure that something like this will not happen again.
Contrary to my sovereignist beliefs, I would entrust all the EU financial policy and punitive authority to Germany. They have the necessary discipline to put the economy above politics or any euro-romanticism. People around this basin cannot be trusted, sorry. Not with a single 1 Eur c. They make too many "mistakes" for comfort.
Deficits should also be trimmed, but not only by taxing and charging more. Unnecessary embellishment projects can be shelved. At least for the time being. The EU should also have a 'corruption and maladministration' watchdogs over national politicians(for large amounts), with the power to prosecute. Local watchdogs are ineffective and untrustable by nature, especially in small countries.
In the meantime, the Euro should be saved at all costs, because we all have to lose if it now fails. Together with assurance that none of this will happen again.
Frank Portelli 2BFRANK
May 19th 2010, 21:29
Make no mistake about this -- it is a serious enough situation
Speculators have in the past successfully forced a country to devalue its currency – the most notable occasion was in 1992 (Black Wednesday) when George Soros speculated against the Pound Sterling and forced a devaluation.
Speculators are hoping to do the same to the Euro by short selling it.
At present speculators can sell financial instruments without actually owning them -- or even without having borrowed them .
This gives speculators great leverage against a currency – and Angela Merkel has picked up the Gauntlet and declared war (unilaterally) on speculators.
If speculators succeed to force a devaluation of the Euro many EU-Citizens will suffer particularly those on fixed incomes such as wage earners and pensioners.
It’s in our interest that speculators do not succeed.
There is of course a ‘nuclear option” a wind-fall tax on speculation
The EU may come to that yet
Dr Frank Portelli MD FRCS(Ed)
victor caruana
May 19th 2010, 20:59
Remember when it was safer to hold the Maltese pound with pictures of ex president Agatha Barbara. Need to remind readers that the sterling has devalued by 50% against Agatha Barbara's pound note.
Any champion about devaluation wants to comment????
And by the way our GDP compared to that of EU have not budged an inch since then!!!!!
Paul Smith
May 19th 2010, 19:22
Just to answer some points here:
Mr Gauci, Sterling was in the gutter because it was BOE (Bank of England) and Gov policy for it to be like that, thats not to say the UK isn't in a fiscal mess, far from it. QE was always going to crash sterling, but we export tangible things and have our own natural resources and that is why we dont have 20% unemployment like some Club Med countries. The markets have lost all faith in the Euro, you cannot have such divergent economies sharing one interest rate.
Martin Cassar, very well said, brilliant post, you are 100% correct, the only thing you left out was the coming oil shock, the one that will never end in our lifetime. The car is well and truly in the ditch, this time it will be impossible to get it out.
m farrugia
May 19th 2010, 18:48
So Ms Merkel said that if the Euro fails EU will fail. So what, if EU fails the biggest loser would be Germany. So let it be.
S Borg
May 19th 2010, 18:41
The Euro currency was and still is the best option for Malta. One has to consider that our Lira was mainly based on UK Sterling and the US Dollar currencies which both had and still have their hard times. The problem at the moment is that within the Euro Zone we had Greece. An irresponsible state which was living beyond it's means and which is now endangering the live hood of other Europeans. When the Greeks where living beyond their means we and others within the Euro Zone where making sacrifices to restore the Economy. The Euro still remains the best and only option for a country the size of ours
Gordon Farrugia
May 19th 2010, 21:19
hello....... is this a case of pointing fingers? The way you make it sound is like we're responsible angels... Malta has one of the biggest deficits (by proportions) of all Europe - we have been also living beyond our means for decades because of an irresponsible spend thrift administration. And trust me there will be payback time - the pains will be borne by our children and their children for many, many years. The only advantages Malta has is that most of the monies are owed to Maltese citizens so the government could always tax the hell out of us (like it starting to do after having sold all state assets!).
Wenzu Vella
May 19th 2010, 22:58
Gordon
Regardless who the state owes money too, it has to be repaid with interest. You are very right that future generations will inherit all the problems that PN has been borrowing in the name of all of you.
Now you are entering into another new problem by borrowing millions of euro to lend to a country that have no means of repaying. They are in such a mess this of-course is Greece. You the Maltese tax payers are gauranting these millions because of the commitment by your incompetent government.
Ron Saliba
May 19th 2010, 18:01
kemm haw min jixtieq deni (la mhux il partit tal PL qieghed fil gvern). Mhux ahjar kulhadd jikber naqa. Qiskom qabda tfal zghar. Naha hemm tal PN jiftahru u jiddefendu b xi funtana li fetah Gonzi, u in naha l ohra tal PL li ghalihom kollox hazin u korrott (bhal min qal li Malta hawn xi persuna mhux korrotta!!) u li jixtiequ l hsara .
IKBRU NAQA.
smifsud
May 19th 2010, 17:58
and its going to get worse people ...so u better batter down the hatch because its going to get ugly ....LM what is that ?..now all is paid in Euros and for the ones charging properties and cars etc etc in LM can say goodbye to that scam ....DEFLATION IS COMING TO MALTA VERY SOON !!!
wally vella-zarb
May 19th 2010, 17:57
"the root cause of the debt crisis was insufficiently competitive countries living above their means, Mrs Merkel said"
That sounds uncomfortably familiar. I wonder which countries she had in mind...
Albert Critien
May 19th 2010, 17:54
There are times when I feel ashamed of being Maltese, aren't certain people aware of what goes on around us do these same cluster only live for contradicting the government, do they not consider growing up.
In the past our little Island was considered startegically situated, hence useful and had real people living on it who carried brains besides being brave and mentally and physically strong.
What are we after now being that little island at the mercy of all and sundry or proud to be a part of Europe.
Please speak sense
Joe Gauci
May 19th 2010, 18:02
Mr Albert Critien How can we be proud to be, as other people have said and usually say on these columns, in a colonialist system being ordered around? Better out and decide our own business with our own currency that has served us well over the years than being ordered around Mr Critien.
Denis Catania
May 19th 2010, 17:35
Hey EU fasten your seatbelt and brace for a crash landing the worst is yet to come.
Martin Cassar
May 19th 2010, 17:33
The time of accountability has come.
Banning naked short-selling of eurozone government debt and shares of major financial companies is a step in the right direction, however it remains a small step I am afraid.
The whole issue is deeper than this. We are facing a system collapse. We have been living beyond our means for decades. We have been living under false luxuries which is now evaporating in slow motion. Could we sustain what we have today? For how long?
The USA slowly but surely losing its political, economical and military muscles [running after Bin Laden] and soon will no longer be counted among suzerain countries in the international arena.
China has stripped Germany (Europe's largest economy) of its top exporter title.
Conclusions; we are facing two irreversible deficits in both finance and population. The latter would leave Europe and all developing countries more like an old and poor old peoples home and the former would lead to capitalism’ death. All this is happening while the young Communist Chinese dragon is flying up high and very soon would swallow Wall Street!
Ray Buhagiar
May 19th 2010, 17:30
Is this related to the recession, which according to our members of parliament is 'over'?
What is the advice of our minister for Finance or the bank Governor regarding the state of EU and Malta?
Joe Bugeja
May 19th 2010, 17:17
"That is our historic task; if the euro fails, then Europe fails," she told the lower house of parliament today. "The euro is in danger - if we do not avert this danger, then the consequences for Europe are incalculable, and then the consequences beyond Europe are incalculable."
Let's hope it does dear Mrs Merkel. Let's hope it does.
E Gatt
May 19th 2010, 18:01
Another typical reaction from the pessimists.
Hoping our currency fails in order to derive some perverse ‘I told you so’ pleasure.
lgalea
May 19th 2010, 17:14
Ah, so the euro has saved us from going down like Iceland, did it?
And we had to guarantee between €350 - 400 MILLION to prop up the crap euro on eu orders.
And we had to give more than €74 MILLION to Greece, again on eu orders.
Where are those who defend the adoption of the crap euro now?
M.Gauci
May 19th 2010, 17:58
The Euro has helped us become more stable, it gave a decent rate of exchange to tourists. It made commerce easier with our major trading partners and much more advantages.
You always seem to stop at (and enjoy bad news about) the Euro and do not recognise that the GBP (you probably know it as Sterling) was down in the gutters for the best part of last year. The US dollar experiences periods of unstableness and so do many more major currencies.
In Malta's case, there is no question about it, the Euro was a major positive decision taken to join it.
Iceland, had it finaincial woos with its own currency and then they applied to join the EU and not the Euro.
E Gatt
May 19th 2010, 17:59
The usual reaction from the gloom and doom brigade: if there is a crises, then give up.
The Euro is a unique currency. It needs cooperation between different states. The fiscal measures being taken across many states in Europe, are necessary but have a negative effect on consumer spending and exchange rates.
lgalea
May 19th 2010, 22:30
M.Gauci STOP repeating the LIE about Iceland being in trouble because it did not have the euro. It is in trouble because of the irresponsible management of its banks. As for applying to join the eu, let's hope it does to hasten the eu demise.