Wednesday

26th Apr 2017

Merkel: Countries will not be kicked out of eurozone

  • Merkel and Van Rompuy have ruled out expelling Greece from the eurozone (Photo: Council)

German Chancellor Angela Merkel has said that kicking countries out of the eurozone is excluded as an option, but that Greece must impose the austerity and restructuring measures that are a condition of the bail-out, or Athens will not receive its latest tranche of rescue funds.

EU Council President Herman Van Rompuy meanwhile has said that still further political pressure needs to be applied to Greece and Italy to slash their debt levels.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

The German leader’s comments were made privately to her parliamentary colleagues, according to Berlin-based reports. Merkel described the situation in Greece and Italy as “fragile,” according to the Irish Times.

“I’m not even considering the possibility because I think we would start a domino effect that would be extremely dangerous for our currency system,” the paper quotes her as saying.

Instead, the path out of the crisis is austerity and deeper fiscal integration of eurozone states, she said, according to officials.

Heading into a meeting with the chancellor Monday evening, EU Council President Herman Van Rompuy echoed Merkel’s comments, saying that the political screws should be tightened still further on Greece and Italy.

“Financial markets see that there are still problems in the execution of plans in Greece and Italy,” he said. “Europe must increase pressure on those countries in order for them to implement the plans they put together.”

He also said that kicking Greece out of the eurozone would “cause more problems than solutions”.

Separately, the German finance minister, Wolfgang Schäuble, and the head of the European Central Bank, Jean-Claude Trichet, set out their visions for the future of the single currency area, with the former attacking arguments that the problem with the European economy is a lack of demand and declared that “austerity is the only cure for the eurozone.”

Writing an opinion piece in the Financial Times, he criticised calls “on the US and Germany to use their supposed ‘fiscal space’ to encourage demand and on European Union leaders to take an immediate leap into a fiscal union and joint liability.

“Piling on more debt now will stunt rather than stimulate growth in the long run,” he wrote

Schaeuble argued that the solution in all western countries is to trim down their public sectors, even if voters are opposed.

“The recipe is as simple as it is hard to implement in practice: western democracies and other countries faced with high levels of debt and deficits need to cut expenditures, increase revenues and remove the structural hindrances in their economies, however politically painful.”

“ There is some concern that fiscal consolidation, a smaller public sector and more flexible labour markets could undermine demand in these countries in the short term. I am not convinced that this is a foregone conclusion,” he added.

He also argued against immediate fiscal union as it would remove the incentive for governments to make structural changes, but instead for more gradual fiscal centralisation that may require “profound treaty changes.”

Outgoing ECB chief Trichet for his part, argued in Paris on Monday for a European “federal government with a federal finance minister."

His successor, Italian central bank head Mario Draghi, called on eurozone state to take a quantum leap towards integration, adding that a key problem with the single currency is a lack of co-ordinated tax policies.

The various visions of the future of European integration came against a background of tumbling shares and soaring peripheral bond yields.

European stocks slid four percent on Monday, with financial shares hit particularly badly.

Josef Ackermann, the CEO of Deutsche Bank told a banking conference in Frankfurt the same day that European banks would not be able to handle write-downs of government bonds.

“It is obvious, not to say a truism, that many European banks would not cope with writing down the government bonds held in the banking book to market value,” he said.

Asian shares on Tuesday tumbled. S&P 500 futures in Asia were off 2.7 percent while Greek one-year bond yields climbed to a record 82.1 percent and Italy’s ten-year bonds leapt to 5.56 per cent.

Elsewhere, Slovak finance minister Ivan Miklos told the Financial Times that delaying the vote on extending the powers of the eurozone's bail-out fund would be "counterproductive". His comments came after parliamentary speaker and head of the junior coalition party Richard Sulik said the vote would not be held before December. Sulik's party's support is needed to pass the vote.

China: 'You can't depend on us alone to rescue Greece'

A 'regular' phone call between EU commission chief Jose Manuel Barroso and Chinese Prime Minister Wen Jiabao on Friday morning was aimed at reassuring markets that China will continue to support the ailing eurozone. But a Chinese diplomat noted that Beijing will only buy those bonds guaranteed to be paid back.

Analysis

Germany's competing visions of Europe

No doubt fed up of being cast as the eurozone's pantomime villainess once again, this time Angela Merkel got her rebuttal in first.

Eurogroup makes 'progress' on Greek deal

Eurozone ministers endorsed an agreement in principle between the Greek government and its creditors over a new package of reforms. But talks on fiscal targets and debt could still block a final agreement.

New anti-trust complaint looms over Microsoft

At least three security software companies “met several times” with the European Commission to complain about Microsoft’s alleged abuse of its market position. A formal case could follow.

Commission stops German-British stock merger

The decision to block the merger of the London Stock Exchange and Deutsche Boerse was expected, as negotiations between the parties broke down a few weeks ago.

SMEs lack support in EU financial plan

The European Commission's plan for a capital markets union is said to be aimed at small and medium-sized enterprises, but many could end up being left out in the cold.

New anti-trust complaint looms over Microsoft

At least three security software companies “met several times” with the European Commission to complain about Microsoft’s alleged abuse of its market position. A formal case could follow.

Investigation

MEPs oppose EU agency to prevent Dieselgate II

The European Parliament said on Tuesday that there should be more EU oversight on how cars are approved, but stopped short of calling for an independent EU agency.

News in Brief

  1. EU parliament moves to lift Le Pen's immunity
  2. EU Commission launches probe into Hungary's university law
  3. Scots slowly losing appetite for independence - poll
  4. Council of Europe puts Turkey on watch list
  5. EU to put parental leave on political agenda
  6. Israel cancels German meeting over human rights groups
  7. Hungary's Orban will participate in EU parliament debate
  8. Malta floats cash-for-refugees plan

Stakeholders' Highlights

  1. UNICEFRace Against Time to Save Millions of Lives in Yemen
  2. Nordic Council of MinistersDeveloping Independent Russian-Language Media in the Baltic Countries
  3. Swedish EnterprisesReform of the European Electricity Market: Lessons from the Nordics, Brussels 2 May
  4. Malta EU 2017Green Light Given for New EU Regulation to Bolster External Border Checks
  5. Counter BalanceCall for EU Commission to Withdraw Support of Trans-Adriatic Pipeline
  6. ACCAEconomic Confidence at Highest Since 2015
  7. European Federation of Allergy and Airways60%-90% of Your Life Is Spent Indoors. How Does Poor Indoor Air Quality Affect You?
  8. European Gaming and Betting AssociationCJEU Confirms Obligation for a Transparent Licensing Process
  9. Nordic Council of MinistersNordic Region and the US: A Time of Warlike Rhetoric and Militarisation?
  10. European Free AllianceEFA MEPs Vote in Favor of European Parliament's Brexit Mandate
  11. Mission of China to the EUXinhua Insight: China to Open up Like Never Before
  12. World VisionViolence Becomes New Normal for Syrian Children

Latest News

  1. Brexit is about Europe's future as well
  2. Power struggle in Greenland: Three reasons why the EU should care
  3. Nordic and Baltic countries step up digitalisation efforts
  4. European states still top media freedom list
  5. Let’s not put European public health at risk
  6. Threatened Budapest university calls for EU support
  7. Orban set to face down EU threats
  8. Dont expect 'quick fix' in Syria, China tells EU

Stakeholders' Highlights

  1. International Partnership for Human RightsTime to Turn the Tide and End Repression of Central Asia's Civil Society
  2. European Free AllianceAutonomia to Normalnosc - Poland Urged to Re-Grant Autonomy to Silesia
  3. UNICEFHitting Rock Bottom - How 2016 Became the Worst Year for #ChildrenofSyria
  4. Malta EU 2017Green Light Given for New EU Regulation to Bolster External Border Checks
  5. ACCAG20 Citizens Want 'Big Picture' Tax Policymaking, According to Global Survey
  6. Belgrade Security ForumCall for Papers: European Union as a Global Crisis Manager - Deadline 30 April
  7. European Gaming & Betting Association60 Years Rome Treaty – 60 Years Building an Internal Market
  8. Malta EU 2017New EU Rules to Prevent Terrorism and Give More Rights to Victims Approved
  9. European Jewish Congress"Extremists Still Have Ability and Motivation to Murder in Europe" Says EJC President
  10. European Gaming & Betting AssociationAudiovisual Media Services Directive to Exclude Minors from Gambling Ads
  11. ILGA-EuropeTime for a Reality Check on International Day for the Elimination of Racial Discrimination
  12. UNICEFHuman Cost to Refugee and Migrant Children Mounts Up One Year After EU-Turkey Deal