17th Apr 2021

Eurozone storm abates but politicians face disapproval

  • Rome skyline: Markets responded well to a new bond issue by Italy, allaying fears that the Greek crisis is spreading (Photo: Giampaolo Macorig)

European politicians faced a barrage of criticism on Thursday (29 April) over their handling of the Greek debt crisis, even as signs emerged that the eurozone appeared to be stabilising after one of its most tumultuous weeks.

Greek bonds and stocks rose in value amid reports that a three-year (2010-2012) bail-out package could total as much as €120 billion. In return for the EU-IMF loan, negotiators in Athens were close to agreeing a €24 billion package of austerity measures, said the Financial Times.

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The measures reportedly include a three-year wage freeze for public sector workers and a further VAT increase this year, as the country's centre-left Pasok administration attempts to shave 10-11 percent of GDP off its budget deficit over the lending period.

Pressure on Portuguese bonds and stocks also retreated on Thursday, a day after Prime Minister Jose Socrates said he would immediately implement austerity measures initially planned for 2011-13.

The move appeared to appease nervous investors after a credit rating downgrade for Portugal on Tuesday sent the country's borrowing costs skyward and caused sharp loses on the Lisbon stock market, leading analysts to conclude that contagion was rapidly spreading from Greece.

A successful bond issuance in Italy on Thursday also suggested the risk of contagion was receding, with Rome receiving strong demand for €3 billion in three-year bonds and €3.5 billion in 10-year bonds.

European civil war?

Despite the positive signs however, some influential observers said eurozone difficulties were far from over, directing harsh criticism towards a number of the bloc's most senior politicians.

Speaking to university students on Wednesday night in Berlin, Germany's ex-foreign minister Joschka Fischer warned that Chancellor Angela Merkel's procrastination on coming to Greece's aid could turn the current crisis into a "European tragedy".

"This crisis is so serious that we cannot just wait around," he said. "This is the worst crisis Europe has experienced, more serious than I could have imagined, and it could end in tragedy."

Others went further. Pointing to difficulties in Portugal, Spain, Ireland and possibly Belgium, analysts at Elliott Wave International said the spreading debt crisis could lead the European Union towards eventual breakup or even civil war.

European lawmaker Philippe Juvin, a leading member of French President Nicolas Sarkozy's party, on Thursday questioned where the EU's top politicians were hiding out during the current crisis.

"Where is the president of the European Council? What is the president of the European Commission doing? Is there a European (Union) driver managing the Greek crisis?"

The answer as it happens is Asia, with a large number of the EU's top officials set to attend the opening of the Shanghai Expo 2010 on Friday.

German legal challenge

Amid the disorder, the possibility that Berlin could be legally prevented from contributing to the Greek aid package stands out as a potential source of further difficulty.

Four German professors - Wilhelm Hankel, Wilhelm Nolling, Karl Albrecht Schachtschneider and Joachim Starbatty - are attempting to do just that, on the grounds that a bilateral transfer to Greece would breach the EU's 'no bail-out' clause.

The four unsuccessfully fought an anti-euro lawsuit at the German constitutional court in 1998, but are confident they will win this time. "Our initiative has unbelievably big support," professor Starbatty said this week.

Legal experts are currently debating whether the German court could allow aid to flow to Greece while it looked into the legality of the transfer.

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