Tuesday

6th Jun 2023

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.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

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.

ECB: eurozone home prices could see 'disorderly' fall

The European Central Bank in its Financial Stability Review warned EU home prices could see a 'disorderly' fall as high mortgage rates are making houses unaffordable for households and unattractive for investors.

Adapting to Southern Europe's 'new normal' — from droughts to floods

Extreme weather events in recent months have worsened agricultural production in southern Europe, prompting concerns for authorities in Portugal, Spain, France and Italy. As countries will likely face dryer conditions, experts urge adaptation measures for the 'new normal'.

Analysis

Final steps for EU's due diligence on supply chains law

Final negotiations on the EU due diligence law begin this week. But will this law make companies embed due diligence requirements in their internal processes or incentive them to outsource their obligations to third parties?

Latest News

  1. Final steps for EU's due diligence on supply chains law
  2. Top EU court rules Poland's court reforms 'infringe law'
  3. Sweden's far-right is most anti-Green Deal party in EU
  4. Strengthening recovery, resilience and democracy in regions, cities and villages
  5. Why Hungary cannot be permitted to hold EU presidency
  6. Subcontracting rules allow firms to bypass EU labour rights
  7. Asylum and SLAPP positions in focus This WEEK
  8. Spanish PM to delay EU presidency speech due to snap election

Stakeholders' Highlights

  1. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  2. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  3. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  4. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  5. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics
  6. EFBWWEFBWW calls for the EC to stop exploitation in subcontracting chains

Stakeholders' Highlights

  1. InformaConnecting Expert Industry-Leaders, Top Suppliers, and Inquiring Buyers all in one space - visit Battery Show Europe.
  2. EFBWWEFBWW and FIEC do not agree to any exemptions to mandatory prior notifications in construction
  3. Nordic Council of MinistersNordic and Baltic ways to prevent gender-based violence
  4. Nordic Council of MinistersCSW67: Economic gender equality now! Nordic ways to close the pension gap
  5. Nordic Council of MinistersCSW67: Pushing back the push-back - Nordic solutions to online gender-based violence
  6. Nordic Council of MinistersCSW67: The Nordics are ready to push for gender equality

Join EUobserver

Support quality EU news

Join us