Friday

20th Oct 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.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

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.

Macron puts trade policy on summit table

France's president wants a "political discussion" on EU trade policies at Thursday's summit, amid domestic concerns over Canada and South America deals. But his colleagues are likely to avoid a lengthy debate.

News in Brief

  1. Dutch PM: Brexit is 'still a bad idea'
  2. Commission to issue proposal on civil protection
  3. Tusk: 'No space' for EU intervention in Catalonia
  4. Austrian PM calls Brexit talks speed 'big disappointment'
  5. PM Muscat: journalist murder 'left a mark' on Malta
  6. Belgian PM: No crisis with Spain over Catalan remarks
  7. Ireland PM: Further Brexit concessions needed from UK
  8. Merkel: rule of law in Turkey going 'in wrong direction'

Stakeholders' Highlights

  1. European Jewish CongressEJC Applauds the Bulgarian Government for Adopting the Working Definition of Antisemitism
  2. EU2017EENorth Korea Leaves Europe No Choice, Says Estonian Foreign Minister Sven Mikser
  3. Mission of China to the EUZhang Ming Appointed New Ambassador of the Mission of China to the EU
  4. International Partnership for Human RightsEU Should Seek Concrete Commitments From Azerbaijan at Human Rights Dialogue
  5. European Jewish CongressEJC Calls for New Austrian Government to Exclude Extremist Freedom Party
  6. CES - Silicones EuropeIn Healthcare, Silicones Are the Frontrunner. And That's a Good Thing!
  7. EU2017EEEuropean Space Week 2017 in Tallinn from November 3-9. Register Now!
  8. European Entrepreneurs CEA-PMEMobiliseSME Exchange Programme Open Doors for 400 Companies Across Europe
  9. CECEE-Privacy Regulation – Hands off M2M Communication!
  10. ILGA-EuropeHealth4LGBTI: Reducing Health Inequalities Experienced by LGBTI People
  11. EU2017EEEHealth: A Tool for More Equal Health
  12. Mission of China to the EUChina-EU Tourism a Key Driver for Job Creation and Enhanced Competitiveness

Latest News

  1. EU seeks to shut down sea route from Libya
  2. Digital debate will be first test of Tusk's new policy crowbar
  3. EU Parliament: EU migrant quotas do have a future
  4. EU countries praise Tusk's new summit plans
  5. Commission employs double standards in Spain
  6. Legal study sounds alarm on 'Baysanto' merger
  7. Health MEPs want to phase out glyphosate by 2020
  8. Tusk: EU migrant quotas have 'no future'

Stakeholders' Highlights

  1. CECENon-Harmonised Homologation of Mobile Machinery Costs € 90 Million per Year
  2. ILGA-EuropeMass Detention of Azeri LGBTI People - the LGBTI Community Urgently Needs Your Support
  3. European Free AllianceCatalans Have Won the Right to Have an Independent State
  4. ECR GroupBrexit: Delaying the Start of Negotiations Is Not a Solution
  5. EU2017EEPM Ratas in Poland: "We Enjoy the Fruits of European Cooperation Thanks to Solidarity"
  6. Mission of China to the EUChina and UK Discuss Deepening of Global Comprehensive Strategic Partnership
  7. European Healthy Lifestyle AllianceEHLA Joins Commissioners Navracsics, Andriukaitis and Hogan at EU Week of Sport
  8. Nordic Council of MinistersNordic Council Representative Office Opens in Brussels to Foster Better Cooperation
  9. UNICEFSocial Protection in the Contexts of Fragility & Forced Displacement
  10. Nordic Council of MinistersNordic Innovation House Opens in New York to Support Start-Ups
  11. ILGA EuropeInternational Attention Must Focus on LGBTI People in Azerbaijan After Police Raids
  12. European Jewish CongressStrong Results of Far Right AfD Party a Great Concern for Germans and European Jews