French president Nicolas Sarkozy warned of damage to Franco-German relationship if Angela Merkel opposed EU plan

French president Nicolas Sarkozy threatened to pull out of the euro unless Angela Merkel dropped her hostility to the EU’s safety net plan.

Nicolas Sarkozy threatened to abandon the euro unless Angela Merkel dropped her hostility to the EU’s €750bn safety net for the single currency, sources in Brussels and European capitals said yesterday.

In a confrontation between Europe's two most powerful politicians, the French president said he would walk out of the talks and warned of lasting damage to the Franco-German relationship unless the German chancellor backed the plans.

“It was a standup argument. He was shouting and bawling,” said one official in Brussels. “It was Sarkozy on steroids,” said a European diplomat. “He's always very energetic. This time he was very emotional, too.” The French leader banged his fist on the table, according to yesterday’s El País newspaper in Spain.

Read more >> | Nicolas Sarkozy threatened to pull out of euro over Greece row | World news | The Guardian.

See also >> | EuropeanVoice.com | Sarkozy ‘threatened’ to leave eurozone

See also >> | EuropeanCEO | Berlin denies Sarkozy threatened to quit euro

Barroso says member states must show they are serious about fundamental reforms.

The European Commission today (12 May) called for a major reinforcement of EU control over eurozone countries’ economic policies. It said that the EU needed stronger powers if the single currency is to survive.

“Member states should have the courage to say whether they want an economic union or not, because if they do not want that, it is better to forget monetary union altogether,” José Manuel Barroso, the president of the Commission, said.

He said that the seeds of the current eurozone debt crisis had been sown by a lack of policy co-ordination and enforcement, and reform was vital to prevent such a crisis from breaking up monetary union. “We really must show that we are serious about the fundamental reforms needed,” Barroso said. “We must now get to the root of the problem.”

Read more >> | Commission calls for greater economic control  |  Policies  |  Economics  |  Management | European Voice.

See also >> | EUActiv.com | New austerity measures for Portugal, Spain

See aslo >> | FT.com | Spanish deflation fears hit euro

See also >> | EUObserver.com | EU budgetary proposals draw immediate rebuke

See also >> | NRC- Handelsblad | Verhofstadt: ‘Speculators are doing Europe a favour’

See also >> | ProjectSyndicate | Europe’s Historic Gamble

In the end, there was no choice. Faced with an existential threat, the European Union has demonstrated that it can act fast if necessary. European leaders deserve respect for finally getting ahead of the situation.

That said, we should also realise that by throwing money at the problem, mostly in the form of backstop guarantees, the EU has merely bought itself time to sort out the eurozone’s governance mess. The real test is yet to come.

There are important parallels to the EU’s guarantees for the financial sector in October 2008 following the collapse of Lehman Brothers. That decision, also made in a dramatic session over a weekend, solved an immediate liquidity problem of the European sector, which was on the verge of a meltdown. But the decision did not, and could not, address the sector’s underlying solvency position, which is still a problem two years later.

Read more >> | FT.com / Columnists / Wolfgang Munchau – EU buys itself time.

Global authorities have announced audacious coordinated action to combat escalating financial market tensions triggered by worldwide fears over public finances.

The European Central Bank announced early Monday morning it would intervene in government bond markets and join the US Federal Reserve and other main central banks in reactivating extra US dollar liquidity facilities.

Just minutes earlier, the European Union and the International Monetary Fund had agreed an emergency funding facility worth as much as €720bn ($930bn, £625bn) in loan guarantees and credits to stabilise the eurozone.

Read more >> | FT.com / Europe – Global action to defuse market tension.

See also >> | Guardian Online | EU financial crisis – live blog

See also >> | EuropeanVoice | EU ready to spend €500bn to contain crisis

See also >> | BBC Online | EU ministers offer 500bn-euro plan to support currency

See also >> | EurActiv | EU seals deal to shield euro from speculators

See also >> | EU Council Press release 9/10 may 2010

See also >> | Ecofin Press conference on video

See also >> | DutchNews.nl | Euro rescue package agreed, Dutch contribution €26bn

The Greek financial crisis has put the very survival of the euro at stake.  At the euro’s creation, many worried about its long-run viability. When everything went well, these worries were forgotten. But the question of how adjustments would be made if part of the eurozone were hit by a strong adverse shock lingered. Fixing the exchange rate and delegating monetary policy to the European Central Bank eliminated two primary means by which national governments stimulate their economies to avoid recession. What could replace them?

The Nobel Laureate Robert Mundell laid out the conditions under which a single currency could work. Europe didn’t meet those conditions at the time; it still doesn’t. The removal of legal barriers to the movement of workers created a single labor market, but linguistic and cultural differences make American-style labor mobility unachievable.

By Joseph E. Stiglitz

Read more >> | Can the Euro be Saved? – Project Syndicate.

See also >> | BBC News | EU finance ministers to debate ‘stabilisation fund’

See also >> | EurActive | Euro leaders agree crisis plan to calm markets

See also >> | Businessweek.com | Dutch parliament approves aid for Greece

See also >> | EuropeanVoice | Eurozone creates stabilisation fund

See also >> | FT.com | A bail-out for Greece is just the beginning

See also >> | FT.com | EU to expand emergency fund by €60bn

Under a deal struck by eurozone finance ministers on Sunday (2 May), Athens would receive 80 billion euros in bilateral loans in three years spanning until 2012. 30 billion would come from the International Monetary Fund (IMF).

Eurozone member states would contribute to the loans according to their respective holdings of the European Central Bank’s capital, making Germany and France the two largest contributors to the aid plan.

Read more >> | Euro zone seals €110bn rescue plan for Greece | EurActiv.

See also >> | European Voice | Eurozone ministers approve €110bn aid package

See also >> | EUobserver | Euro area states agree €110bn loan for Greece

See also >> | Project Syndicate | Why Greece Will Default

Greece must agree to tough new austerity measures before it receives any financial aid from the European Union and failure to do so would endanger such support, German Finance Minister Wolfgang Schaeuble told a newspaper.

The debt-saddled euro-zone member has already announced billions of euros in austerity measures, including tax hikes and public sector wage cuts, but is talking with the EU and IMF about additional steps.

Read more >> | Germany puts new conditions on aid to Greece | EurActiv.

See also >> | Reining in Europe’s Debtor Nations | Project Syndicate

See also >> | Der Spiegel Online | Will the Greek Bailout Destroy the Euro Zone?

Eurozone finance ministers approved a giant 30-billion-euro emergency aid mechanism for debt-plagued Greece on Sunday (11 April) but stressed Athens had not requested the plan be activated yet.

Together with at least 10 billion euros expected from the International Monetary Fund in the first year, it could add up to the biggest multilateral financial rescue ever attempted.

Read more >> | Euro zone readies 30bn euros to rescue Greece | EurActiv.

The European Union has 27 members. Only two of them were seriously involved in finding a solution for the problem created by the Greek debt crisis.

After weeks of negotiations, the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, agreed on a rescue plan for Greece. The final draft of the entire deal, which was ready on Thursday around five o’clock, fit on a single sheet of paper. It stated the IMF and the euro countries would lend Greece money if it failed to raise sufficient funds on the financial markets, and that they would prevent similar problems in the future through better economic coordination and stricter regulation.

While Sarkozy and Merkel sent the text to the EU-president Herman Van Rompuy for approval, a member of Sarkozy’s staff gathered a few journalists for a short off the record briefing. . No questions. No quotes. A concise, mesdames et messieurs was all the introduction the deal got. France would be getting its way, was the spin of the statement. Greece would get European loans, and the IMF would be playing only a minor part in the operation.

By Caroline de Gruyter in Brussels

Read more >> | nrc.nl – International – Europe – ‘Greek problem’ defines new European balance of power.

Leaders come up with blueprint for providing emergency loans.

Leaders of the 16 nations in the eurozone tonight approved a blueprint for providing emergency loan aid to Greece.

All Greece's counterparts in the eurozone have agreed to take part in providing bilateral loans, if needed, said José Socrates, prime minister of Portugal, who confirmed the accord.

“We have reached an agreement which answers the problem we have been faced with,” he said.

The leaders met on the margins of a European Union summit on Thursday evening (25 March). The summit has been overshadowed by the Greek debt crisis, which has rumbled on for three months and threatened to destabilise the euro currency.

In the run-up to the summit, Angela Merkel, Germany's chancellor, had been holding out against EU aid for Greece, insisting that the International Monetary Fund (IMF) should be brought in. But the prospects of a deal improved markedly once Merkel and Nicolas Sarkozy, the president of France, presented their counterparts with a compromise proposal at the start of the summit.

Read more >> | Eurozone reaches agreement on Greek aid   |  Policies  |  EU governance  |  Council of Ministers | European Voice.

A Greek professor and banker talks about his country’s problems and the role of the ECB. “In the West, the banks dragged down the governments. Here, the government brought down the banks.”

During the last big demonstration in Athens, the EFG Eurobank in the centre of the Greek capital, directly opposite the parliament, was splattered with red paint. The banking industry is held responsible for the sacrifices that have to be made by citizens now that Greece is forced to make heavy cutbacks. Gikas Hardouvelis, chief economist of the bank and a professor at the University of Piraeus, sees things differently. “The banks too are victims of the financial crisis,” he said in his office around the corner from the besmirched building. “In the West, the banks dragged down the governments. Here, the opposite is true: the government brought down banks and healthy businesses.”

Read more >> | nrc.nl – International – Features – The Greek situation is a warning to other euro countries.

Finance ministers from the 16-country euro zone agreed on Monday (15 March) to mobilise financial aid for Greece rapidly if needed, but revealed little of how their standby plan for the debt-stricken nation would work.

After talks in Brussels, the ministers published a statement saying they had agreed the technicalities of what would be the first rescue in the history of the monetary union that gave birth to the euro in 1999.

Read more >> | Eurozone ministers sketch Greek bailout plan | EurActiv.

Dutch finance minister says there will be intervention, but no bail-out of Greece.

The Netherlands today warned Greece at a meeting of eurozone finance ministers not to expect “a free ride to cheap loans” as part of any EU co-ordinated measures to help it out of its financial woes.

Dutch Finance Minister Jan Kees de Jager said that Greece had “to ensure a solid austerity plan” before any other aid is offered by the other members of the eurozone.

“It’s possible we will take measures in a co-ordinated way…but there will be no bail-out, because a bail-out is also forbidden in the [EU's] treaty,” de Jager said.

Read more >> | Greece told to ensure ‘solid austerity plan’ | Policies | Economics | Management | European Voice.

In concise, non-technical terms, Paul De Grauwe, Professor of Economics at Leuven University and Senior Associate Research Fellow at CEPS, explains how the current financial crisis in the eurozone developed, distinguishing in turn the three main actors that have played a major role: Greece, the financial markets (including the rating agencies) and the eurozone authorities. While acknowledging that a grand plan for more intense political union in the eurozone does not seem possible, he further outlines smaller, but focused steps that could be taken towards such a future union.

Read more >> | Crisis in the eurozone and how to deal with it pdf

See also >> | Europe’s World

Greece may soon announce new steps to cut its budget deficit, a government minister said on Sunday (28 February), amid signs that Athens might be nearing a deal with European Union governments to ease the Greek debt crisis.

Economy Minister Louka Katseli said Prime Minister George Papandreou would review Greece’s fiscal plans, after an EU mission to Athens last week decided that the country’s austerity measures were not strong enough to reassure financial markets.

Read more >> | Greece bailout plan takes shape as EU visit looms | EurActiv.

The euro, which turned out to be the critical tool for defending European interests in this crisis, will now be subjected to an endurance test directed at the soft political heart of its construction. Europe’s leaders – first and foremost Germany and France, which will play the deciding role – must act quickly and put through new, imaginative solutions. This will not come cheap, and therefore will entail substantial political risks. But, given a global economic environment that promises scant sustainable growth in the coming years, things could otherwise get very tough very soon.

By Joschka Fischer

Read more >> | Greek Lessons for Europe – Project Syndicate