German and French leaders meet this week to map out a revised plan for the euro as the Group of Eight exposed disagreement on a rescue strategy, Greece lurched toward a possible exit and Spain’s budget deficit widened.
German Finance Minister Wolfgang Schaeuble will for the first time discuss the 17-nation currency with his newly installed French counterpart, Pierre Moscovici, in Berlin today as European Union leaders prepare for a summit meeting in Brussels on May 23. After three shorter meetings in the last week, Chancellor Angela Merkel and French President Francois Hollande will seek to balance France’s desire to jump-start growth with Germany’s preference for spending cuts.
“We’re all very pleased that France wants to offer new initiatives with its newly elected president,” Schaeuble told the Bild am Sonntag newspaper in an interview yesterday. “The German government is ready to talk about anything,” Schaeuble said, though he ruled out measures that would raise debt.
G-8 leaders on May 19 urged Greece to stay within the euro area as polls in the country showed a close race between parties supporting and opposing the EU’s bailout deal. The country is preparing for June 17 elections, following an inconclusive May 6 ballot. Spain revised its 2011 deficit upward -- even as its borrowing costs approached levels that prompted bailouts in Greece, Ireland and Portugal.
Two More Years
The euro has lost 3.5 percent against the U.S. dollar this month and almost $4 trillion has been wiped from equity markets amid concerns over Greece. Schaeuble said May 18 the turmoil could last another two years. Yields on Spanish 10-year bonds (GSPG10YR:US) climbed to close at 6.27 percent last week. That figure slid to 6.26 percent at 10:56 a.m. Madrid time, while the euro traded down 0.01 percent to $1.2769 in Frankfurt.
President Barack Obama joined G-8 leaders including Hollande and Britain’s Prime Minister David Cameron in embracing a renewed focus on growth, underlining the isolation of Merkel, who maintained resistance to new spending. At the president’s Camp David retreat in Maryland, G-8 leaders said in their final statement that “the right measures are not the same for each of us.”
As EU leaders prepare for their informal dinner, French Prime Minister Jean-Marc Ayrault told Liberation that no potential solutions involving Greece should be rejected. Leaders shouldn’t rule out measures such as state borrowing from the European Central Bank, he said.
Two weeks after elections in Greece yielded political deadlock and forced the once-taboo notion of leaving the monetary union into political discussion, euro leaders grappled with the possible fallout of such a scenario. Caretaker Prime Minister Panagiotis Pikrammenos will oversee a government that will prepare for a new election.
Opinion polls over the weekend gave a split message on the outcome, with two pointing to victory for New Democracy, which backs the international bailout program, and two favoring Syriza, which opposes it.
Syriza party leader Alexis Tsipras said yesterday in a speech in Athens that his faction’s opposition to the terms of Greece’s financial-aid program doesn’t mean the country would have to abandon the euro if the party forms a government.
Luxembourg Prime Minister Jean-Claude Juncker, who heads a group of European finance ministers, said a majority of his peers have doubts about Greece’s membership of the euro, Der Spiegel reported, without saying where it got the information.
Tsipras, who travels to Paris and Berlin beginning today, denounced such talk, saying it would involve “huge costs.”
“We now have to send a very clear message to people in Greece,” Cameron said yesterday as he attended a NATO summit in Chicago. “You can either vote to stay in the euro, with all the commitments you’ve made, or, if you vote another way, you’re effectively voting to leave.”
European Central Bank Executive Board member Joerg Asmussen, speaking in Berlin today, said that policy makers should stick to “plan A,” keeping Greece in the euro. He said he didn’t want to speculate on a “plan B.”
“What’s the alternative? My preference is that Greece stay in the euro,” Asmussen said today.
The sensitivities surrounding an exit were illustrated May 19, when Merkel’s office dismissed a claim by the Greek government that the chancellor had called for a referendum to decide on the country’s membership in the monetary union.
Greek party leaders united in condemning any interference by the German chancellor on such an issue, with New Democracy leader Antonis Samaras, who heads the largest party, calling her reported comments “unfortunate.”
In Spain, the growth-versus-austerity debate took on a new dimension with the country’s revision of its 2011 deficit, undermining Prime Minister Mariano Rajoy’s battle to stave off a bailout and maintain access to capital markets.
Rajoy, who on May 16 asked for EU help to access capital markets even as he said the country faced a “serious risk” of being shut out, is struggling to convince investors he can cut the deficit during a recession while shielding public finances from banks’ real-estate losses.
The deficit amounted to 8.9 percent last year, 0.4 percentage point more than previously estimated, Spain’s Budget Ministry announced at 10 p.m. local time Friday. That’s down from 9.3 percent in 2010, following government austerity measures including cuts to public workers’ wages, a freeze on pensions and a tax increase.
Spanish Economy Minister Luis de Guindos rejected EU pressure this week to take an International Monetary Fund credit line to help shore up the nation’s lenders, the Madrid-based ABC newspaper reported. A ministry spokesman in Madrid declined to comment on the report in ABC, which cited people present at a meeting of EU finance ministers.
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