Euro Crisis Comes Back - After Relative Quiet Period (8/21)     Print

Although it is still August, klieg lights are back up on European debt/euro crisis after a couple of weeks of welcome summer (relative) quiet.  

This week, French President Francois Holland and German Chancellor Angela Merkel meet in Berlin on Thursday Aug. 23 to wrestle once again with the debt crisis that threatens European and global economic stability.  Greek Prime Minister Antonis Samaras , whose country hangs by its fingernails to the euro, travels to Berlin the next day, Aug. 24, before going on to Paris on August 25.

Samaras’ visits to Berlin and Paris will be preceded by a meeting in Athens with Jean-Claude Juncker, Prime Minister of Luxembourg and head of the 17 member Eurogroup.

Samaris is expected to ask for a two-year extension for Greece to meet previous budget and reform commitments, in light of worse than expected economic metrics and a six percent year-over-year drop in GDP.   Response to the Greek entreaty is not likely to be enthusiastic, to say the least. 

“It is not responsible to throw money into a bottomless pit,” said German finance minister Wolfgang Schaeuble, reported Reuters.   Volker Kauder, leader of the Christian Democrat delegation in the German Parliament showed similar skepticism.  “Sooner or later,” he told the New York Times, the Greeks “must answer the question: should we maybe try a little harder, or should we leave the euro.”

As Ollie Rehn, Vice President of the European Commission and Commissioner for Economic and Monetary Affairs and the Euro, wrote in the Wall Street Journal last week, “The euro zone is at a decisive juncture.”  We have heard this before, but the Greek drama  is likely be reach some sort of conclusion after the ECB, European Commission and International Monetary fund return to Athens in early September to access progress of the Greek government in cutting 11.5 billion euros from its budget over the next two years.

Also piquing great interest this week was a story in the German magazine, Der Spiegel, suggesting that the European Central Bank (ECB) was on the verge of announcing that it would impose, via unlimited purchases, upper limits on borrowing costs for some euro zone countries.  The bank quickly denied that any such decision has been reached, but economic analysts around the world actively speculated on the pros and cons of such a move.    Mario Draghi, President of the central bank, did say earlier this summer that the bank was prepared by buy bonds aggressively, but not at the unrestrained rate suggested by Der Spiegel.


By European Affairs