Merkel angrily rejected the desperate pleas from struggling Italy and Spain as rumours of a deepening rift between France and Germany over Eurozone debt sharing intensified. She addressed German MPs ahead of yesterday’s meeting with French president Francois Hollande telling them that the Eurozone must step up its debt reduction plans before begging for more cash.
“I fear that at Thursday’s summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures,” she said.
The Spanish Prime Minister Mariano Rajoy pleaded with the Germans to allow his nation access to euro bail-out funds or to allow the European central bank to stabilise financial markets and ease crippling borrowing costs. Spain is currently being hammered at the bonds market and its borrowing costs are running at the dreaded 7% level, the same level that Greece suffered before it was forced down the bitter road of EU enforced austerity.
“We can’t keep funding ourselves for a long time at the prices we’re currently funding ourselves,” Rajoy cried. “There are institutions and also financial entities that cannot access the markets. It is happening in Spain, it is happening in Italy and it is happening in other countries.”
As Spain’s central bank warned that recession would deepen in the second quarter, official figures showed the government’s deficit had reached 3.41pc of GDP in the first five months of the year, close to its total 2012 target of 3.5 %.
Fears from investors and observers that today’s summit will result in yet another stalemate seem to be justified as once again the leaders of Europe squabble amongst themselves over the way out of the crisis.
Lurking in the wings however is the increasingly sinister figure of European Commission president Jose Barroso. He is urging that the EU members surrender their sovereign powers to Brussels in order to create a closer political and fiscal union.
Critics and nationalists warn that if the Euro crisis continues to drag on and contagion spreads the weak leaders of Europe will quickly become desperate and become willing to surrender their nation’s sovereignty to create a United States of Europe.
“I think it is critically important to have an understanding that to go further we need to work on a banking union, on a fiscal union and step towards a political union. The banking union can be done immediately without revision of the treaties. That is why we are suggesting focusing now on the banking union,” said President Barroso.
“So, we have to combine this ambition, the vision, with proper sequencing. That is what I am looking for in the discussions tomorrow,”
Disbelief from some financial quarters was the response to the president’s comments. Instead of focusing on the ever worsening issue of the Euro crisis the president is looking far into a rose tinted future in which he sees the whole of Europe united and singing the same song. It’s a nice dream but unfortunately due to the nature of Europe and the deep divisions that have remained for decades and the new ones being created by the current albeit long running crisis the opposite is the most likely outcome.
The Italian Prime Minister added to the bickering after pledging to his MPs that he would block any agreements reached at the summit unless emergency measures are introduced to lower borrowing costs, a move that the Germans and others oppose.
“Monti needs to go back to his parliament with a promise of EU help to reduce bond yields. If not he will have trouble with MPs and if there is political chaos in Italy then we’re in real trouble,” said a senior Eurozone official. The EU’s economic and monetary affairs commissioner Olli Rehn has called for urgent action to find a solution to the crisis but his pleas are falling on death ears.
Whatever the outcome of today’s summit, time is quickly running out for the Eurozone. Contagion is spreading like a wildfire as Cyprus became the fifth nation to plea for a bailout. It is now looking like only a matter of time before Italy follows suit, and that would be truly disastrous.
Elsewhere the UK has posted weaker than expected GDP figures showing that the country’s economy is sliding deeper and deeper into recession. Britain’s GDP shrank by 0.4pc between October and December, compared with a previous estimate of 0.3pc, while the economy contracted by an unchanged 0.3pc in the first quarter of the year making the recession worse than feared.
The Pound to Euro exchange rate is currently trading at 1.249
The Pound to US Dollar exchange rate is currently trading at 1.553
The Euro to Australian Dollar exchange rate is currently trading at 1.235
The Euro to US Dollar exchange rate is currently trading at 1.243
The Euro to Pound exchange rate is currently trading at 0.800
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