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Angela Merkel addresses the Bundestag ahead of the two-day summit in Brussels. Markus Schreiber/AP

Merkel blasts ‘fake solutions’ as EU leaders head to Brussels

The German chancellor says short-term measures to stop Spain and Italy from going under won’t cut it.

ANGELA MERKEL has attacked “fake solutions” for the Eurozone’s debt crisis, demanding long-term structural reforms from struggling countries like Spain and Italy ahead of two days of talks between EU leaders in Brussels.

As the European Council – the body of all 27 European heads of state or government – meets today and tomorrow, officials are reportedly working on a plan which would ultimately allow the Eurozone’s bailout funds to buy the bonds of struggling countries.

The firepower of these funds would, ideally, trigger enough demand in those bonds to keep the prices low – thereby stopping Spain and Italy from being charged unaffordably high prices, as Greece, Italy and Portugal were before they were forced into needing a bailout.

The Financial Times reports, however, that Merkel has dismissed the plans as “eyewash and fake solutions” – instead demanding a more long-term programme of reforms to permanently avoid the risk of those countries needing bailouts.

Speaking in the Bundestag yesterday during a debate on this week’s summit, Merkel admitted she was beginning to cut an isolated figure – commenting that “many eye will be focussed on Germany” – but affirmed her demands that struggling countries take action to get their own houses in order.

The Chancellor said the possibility of joint liability for debts – in either the banking sector, through the creation of a European banking union, or in national terms through the introduction of Eurobonds – should only come after individual states pay the price for earlier errors.

Spain’s cry for help

By comparison, the FT adds, Spanish premier Mariano Rajoy had urged the ECB to resume its programme of bond-buying – which has been inactive for about two months – to keep his government’s cost of borrowing down.

“The most important thing today is being able to finance ourselves in the markets,” Rajoy warned, adding: “We can’t finance ourselves at the prices we are paying for very long.”

This morning the cost of borrowing for Spain rose back above the crucial 7 per cent mark for a 10-year loan – a mark most analysts see as a key watermark for whether the country can afford to continue borrowing at the rate it currently does.

This evening’s agenda at the summit will include the presentation of a joint paper from Europe’s ‘four wise men’ – Council president Herman van Rompuy, Commission chief Jose Manuel Barroso, Eurogroup president Jean-Claude Juncker, and ECB president Mario Draghi – on the future of the economic and monetary union.

Their paper – which is now available online – includes proposals for more integration between national budgets, but does not feature much discussion on Eurobonds, as had been reported earlier this week.

Greek absentee

Greece’s new prime minister Antonis Samaras – who would be attending his first Council meeting since taking power earlier this month – is unable to attend, as he recuperates from surgery on a detached retina.

His absence will mean that Karolos Papoulias – the country’s president, whose role is similar in neutrality and ceremony to that of Ireland’s president Michael D Higgins – will step in, presenting other leaders with a pre-prepared communique from Samaras.

The Greek Reporter said that letter would outline the current state of affairs in the country, underscoring both the public desire for Greece to remain in the eurozone, as well as the need for Europe to respond to the needs of Greece and its people.

Before the summit gets underway this afternoon, the European People’s Party – the centre-right European political grouping of which both Fine Gael and Merkel’s Christian Democrats are members – will hold its own meeting in Brussels to discuss the ongoing problems.

It is likely that this meeting – at which van Rompuy and Barroso, being EPP members, will also attend alongside Kenny, Merkel, Rajoy and others – will see a significant amount of preliminary horse-trading as leaders seek to agree common platforms before heading into the European Council summit itself.

Read: Kenny calls for sharing of bank debts – as Merkel again rules out Eurobonds

More: EU leaders will discuss plans to integrate national budgets – report

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34 Comments
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    Mute Pierce2020
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    Jun 28th 2012, 10:24 AM

    ‘four wise men’ – Council president Herman van Rompuy, Commission chief Jose Manuel Barroso, Eurogroup president Jean-Claude Juncker, and ECB president Mario Draghi

    More like the four horsemen of the apocalypse.

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    Mute tomnewnewman.org
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    Jun 28th 2012, 12:04 PM

    Would thee average person be happy with opening a joint credit card account with a group of people with bad credit record. Honest answer please.

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    Mute James Comerford
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    Jun 28th 2012, 1:38 PM

    okay il go so, what if the credit company closes down because the money doesnt come in any longer from the people you are opening the credit card for….. Her solution so far is no solution. Were not even on the same page. She is playing internal election games rather than looking at the overall longer picture.

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    Mute Fagan's
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    Jun 28th 2012, 10:29 AM

    Says the woman who has been to 19 crisis summits in the last 30 months and the Euro as is now normal, still under existential threat.

    Dogmatic Merkel, wants the benefits of the Euro for Germany but none of the accompanying costs.

    Well Germany and France came up with this mad, bad act of economic lunacy. The Euro zone states, rather than converging are actually diverging. As austerity and an overly strong currency hammer the south, and lets be honest here, France is in that pile.

    Time to leave the Eu nationalism to the back and break up the currency in to optimal zones. Let Germany and 6-7 others, merge in to the global power that they so desire and let the others go.

    It will happen either way, as the money to save the currency is not there.

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    Mute Padraic Quinn
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    Jun 28th 2012, 10:52 AM

    Very true.merkel will keep this nonsense going ad long as possible as their exports are thriving with the weak currency.there is no real incentive for her to fix anything.there is no future for some nations in this mess.maybe us too.we need to send strong people to Brussels on our behalf, but alas……

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    Mute Mike Hall
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    Jun 28th 2012, 12:15 PM

    Fagan’s

    Your analysis, pointing to the deeply flawed design of the Euro system is correct. This was always going to happen at the first downturn in the economic cycle.

    Merkel is a completely useless ideologue, like near all the current political leaders. Break up of the Eurozone is becoming ever more likely with leadership like this.

    But you are wrong to say the money is not there. It has always been there. Just like other countries with fiat, free floating currency, the Eurozone has a currency issuing authority, which can provide funds at no debt or cost to anyone. With such high unemployment & massive under utilisation of capacity (ie economic activity & it’s associated higher level of money supply that was present 5 yrs ago, but now gone) there will be no inflation risk from new money issuance for quite some years.

    I posted a comment with my suggested solutions using this facility recently in the Telegraph, so I’ll just repost here:

    More of the tired old ‘TINA mantra from Merkel – the same thinking that created the mess & has continued to make it worse for the last 5 yrs.

    There is absolutely a ‘quick easy fix’ if Euro authorities stop pandering to obscenely rich banksters.

    The ECB, as +issuer+ of debt-free, cost-free Euros is the key.

    Using the principles of MMT economics that correctly describes the fundamental operation of the fiat, free-floating monetary system we have:

    1. Instigate MMT’s Job Guarantee program of minimum wage non-substitutive, non-competing (voluntary/charity/community sector) jobs for any & all unemployed who want them.

    2. With growth returning & well on the way to recovery via the (cost free) stimulus of item 1. consider the sovereign debt sustainability position & consider ECB monetisation of a proportion of countries’ debts on a per capita basis.

    3. With the urgency of the present crisis resolved, get the Eurozone countries to agree measures to transfer a suitable portion of fiscal authority to a central Eurozone wide authority in order to apply the pronciples of ‘functional finance’ across the whole currency area, with (near) full employment & price stability as a dual mandate.

    4. Make illegal 90% of what the financial sector does presently – ie the part that is simply gambling & has no productive (rather purely extractive) purpose whatever in the real economy. As a guiding principle, put the onus on the financial sector to demonstrate by evidence review & trial period that any new product, service or activity on their part must demonstrate its usefulness & value to the real economy, or it will not be allowed.

    Simple.

    If these measures cannot be adopted on a Eurozone basis, then individual countries’, especially in the periphery should vote in ‘non-captured’ leaders to instigate them in their own country following reversion to their own sovereign currency.

    These measures are of course readily implemented in countries that already have theirown currency. There is no shortage of fiat, free floating money, debt free, available to bring these countries back to (& even greater) prosperity & stability.

    The last 30 years of neo-liberal, neo-classical economics that has lied or completely misrepresented the monetary system (& much else) is an abject failure, as demonstrated by the crisis itself, lack of any foresight of it, and the failed ‘solutions’ of the last 5 years. (Failed for the ’99%’ that is – it works just fine for the banksters & top few percent.)

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    Mute Ben Gunn
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    Jun 28th 2012, 12:40 PM

    How is a strong euro damaging Ireland, exports are booming and imports falling. FDI continues to grow apace and we have downward pressure on domestic inflation. How exactly do you you think a devalued currency would help?

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    Mute Fagan's
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    Jun 28th 2012, 1:36 PM

    To print the money it is there, agree with that but to resolve this crisis long term it will rquire that the Euro zone acts as a normal currency block, and that transfer of funds to keep Spanish and Italian bonds at reasonable rates will require more than anyone can afford. The Euro can’t be printed at that level continuously.

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    Mute Paul Carr
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    Jun 28th 2012, 3:39 PM

    What currency zone will be Republic of Ireland belong to? The Gombeen zone? The Drumcondra Mafia zone?

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    Mute Mike Hall
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    Jun 29th 2012, 10:51 AM

    @ Fagan’s

    I agree with the need for the Eurozone to operate like a normal currency block. My point 3. above is about addressing that – applying ‘functional finance’ & some agreed fiscal adjustments centrally is intended to be the transfer mechanism to balance the inherent differences & ensure full employment (via JG finance transfers effectively).

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    Mute The kop
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    Jun 28th 2012, 11:07 AM

    And everyone thought Maggie Thatcher was bad……… !!!! soon enough countries in trouble in EU will end up telling Merkel where to stick it…..

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    Mute Too Trueleft
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    Jun 28th 2012, 11:06 AM

    I can’t believe europe has once again allowed a German chancellor to be in a position where they can literally dictate policies of suffering and cruelty on other nations. Germany is taking control of each nations pursestrings one by one in persuit of financial dominance over the continent. Merkel needs to be stopped NOW by the other leaders

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    Mute Thomas Cooke
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    Jun 28th 2012, 11:15 AM

    Merkel is simply saving her own skin by keeping the German economy out of the mess in advance of key elections hard to see her changing her stance now. There was a time when we had leaders of vision in post war Europe it seems however the need for a cohesive EU is less important now than it was. Merkel is the EU equivalent of our own parish pump politicians.

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    Mute Dave Harris
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    Jun 28th 2012, 12:10 PM

    You’re right Thomas, Merkel is only interested in getting herself voted back in, not the rest of Europe, and not in the best interests of Germany either. Her popularity is sliding in Germany so she is going the populist route to try and stay in power.
    She has imposed harsh austerity on the Germans as well, so hopefully they will give her a boot in the arse on the way out the door….

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    Mute Klaus Störtebeker
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    Jun 28th 2012, 4:37 PM

    I think Merkel’s plan is to delay making any decision before the election in Autumn 2013, but I don’t think her plan will work. Life is moving too fast. It is clear that any real solution will hurt the German economy, but it is also clear that it is necessary to take the pain. It is like the last days of Thatcher, I do not believe Merkel will survive the election. I would not bet that she will survive the next 15 months. And then we can stop eating Europe’s hatred…

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    Mute Dave Harris
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    Jun 28th 2012, 9:32 PM

    Well good luck with that Klaus.
    Is there much of an alternative to Merkel and her austerity mad friends?
    In your opinion would the alternative be more Europe friendly?

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    Mute Kerry Blake
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    Jun 28th 2012, 10:45 AM

    Crises meeting number 20. If something doesn’t give (Merkel) and there is not agreement on Euro bonds or at least the ECB and the bail out funds funding Spanish banks directly to avoid the sovereign debt then Spain will go under to be followed by Italy.

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    Mute PeeedOff
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    Jun 28th 2012, 11:16 AM

    Merkels vay or nein vay !!!!

    Ve haf vays of konquering der lidl volk of Europe.
    Ve vill put der Banks(Tanks) at der front of the assault, break ze people mit ein financial Blitzkrieg. Ve kan then inztall der puppets to power to do der bidding of der Bundestag.

    Ve vill zuckceed vere ve failed 70 jahren ago…!!!

    17
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    Mute Derek
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    Jun 28th 2012, 12:23 PM

    Baxter! You know I don’t speak Spanish!

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    Mute Karswell
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    Jun 28th 2012, 2:38 PM

    To all the purveyors of such juvenile and borderline racist commentary; are you really surprised that we are not being taken seriously when we spout and/or find acceptable this type of drivel. If we want respect then we should show that we know what respect is.

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    Mute Gemima Puddleduck
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    Jun 28th 2012, 2:40 PM

    I don’t know what to think, mate; but you’ve got to wonder, don’t you…

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    Mute Gemima Puddleduck
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    Jun 28th 2012, 11:23 AM

    Joining the Eurozone essentially gave us a credit card that we used recklessly and maxed-out our credit. By virtue of our debt, we are committed to them. The borrower is servant to the lender. By our irresponsible spending, we sold ourselves to the ECB. Until we prove responsible, they won’t respect anything we propose, no matter how much Enda talks.

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    Mute Fagan's
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    Jun 28th 2012, 11:27 AM

    Overly focused on virtue and dividing people/economies in to good and bad.

    Germany’s banks are the most leveraged in all of Europe. They are in fact insolvent but no one is facing up to this, as it will really spell the end of the Euro. Merkel is protecting them first and Europe can go swing.

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    Mute tomnewnewman.org
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    Jun 28th 2012, 12:24 PM

    People who don’t produce driving around in BMWs and Mercs, people who …………(afraid to say it) off on another sun holiday, producers crippled by taxes and rates ……….

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    Mute Shayno ZO
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    Jun 28th 2012, 11:02 AM

    Merkel just gets more and more Brazen the weaker Europe gets, when Frances bonds rise no member state will be in a strong enough position to argue. Yielding control to Germany’s economic preferences I suspect..

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    Mute Fagan's
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    Jun 28th 2012, 11:24 AM

    As Soros warned Germany, they will become the heart of a hated empire, where the economic terms are set t benefit Germany and few others while the PIIGS and others endure permanent slump.

    When one looks at a reasonably financially sound country like Italy, great brands and manufacturing, incredible savings, being frozen out of markets then you know something is severely wrong.

    Merkel will go down as the dogmatic who broke the back of Europe. Though she has had a lot of help, the weight of history will stain her most.

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    Mute Kerry Blake
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    Jun 28th 2012, 11:01 AM

    Italian 10 year bonds hit 6.19% today….

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    Mute Gemima Puddleduck
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    Jun 28th 2012, 12:39 PM

    Red-thumb all you want, lads. Read your history and review your macro-economics. Fagan’s, I agree with you that this is probably pointing to the end of the Euro, and that Merkel of primarily concerned about her own country (sure, aren’t we all?), but blowing me off because I focus on “responsibility” (“virtue” as you call it) is historically and practically groundless. Before the bank approves you for a loan, they check your spending habits and your credit score. If you’ve proved financially irresponsible in the past, there’s no way they are going to approve you for another loan. Secondly, if you owe a debt to them, and you’ve signed your financial power of attorney away to them (like we did a few weeks ago), you’ve got no say whatsoever. There is no overnight fix. Decisions have consequences. The answer: 1. Cut spending until our own budget is sustainable. (This makes us financially independent and gives us credibility). 2. Re-establish our own national sovereignty by pulling away from Brussels as much as feasibly possible.

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    Mute Sean Hyland
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    Jun 28th 2012, 11:51 AM

    Its 1944 all over again. Germany will collapse this project once and for all. http://www.davidmcwilliams.ie/2012/06/25/its-1944-all-over-again

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    Mute Karswell
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    Jun 28th 2012, 2:48 PM

    1944 … Blah blah blah… Nazis…. Blah blah blah…. We will all be enslaved .. Blah blah blah. Use some originality and find an analogy that actually fits the present circumstance.

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    Mute Fringy White
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    Jun 28th 2012, 2:11 PM
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    Mute Kevin McCarthy
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    Jun 28th 2012, 3:06 PM

    Wish he was our Taoiseach. He is bang on.

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    Mute Owen Stafford
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    Jun 28th 2012, 7:49 PM

    Same old,same old……..A sticking plaster being slowly removed. No EU leader has the experience to deal with the crisis simply because they were never in this situation before.

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    Mute censored
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    Jun 28th 2012, 6:07 PM

    Let her blast away at the “fake solutions” while she continues with her non-solutions.

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