Fri December 2, 2011
Merkel, Sarkozy Push For Fiscal Change In Eurozone
Originally published on Fri December 2, 2011 9:30 am
STEVE INSKEEP, HOST:
It's MORNING EDITION from NPR News. Good morning. I'm Steve Inskeep. The leading nations that use the euro have begun pressing for basic changes in the way Europeans govern themselves. The eurozone has staggered from one improvisation to another, trying to make it through a debt crisis. Now French President Nicholas Sarkozy and German Chancellor Angela Merkel are talking of the longer term. President Sarkozy last night called for a new European treaty in a nationally broadcast address. And this morning Germany's Chancellor Merkel called for a tighter fiscal union, though she said it's no quick fix. Many economists say that's the problem: the eurozone does not have the luxury of time.
NPR's Eric Westervelt reports from Berlin.
ERIC WESTERVELT, BYLINE: When the eurozone was created in 1999, the nations using the currency agreed in principle to keep their budget deficits under control. But since then that commitment has largely been a nice idea. Countries regularly violated the rules - even the largest eurozone economy, Germany. Now Berlin and Paris are taking steps to do what critics have long said should have been done at the start: create strict, enforceable budgetary rules and move toward closer coordination of spending and budget policies.
Germany's Chancellor Angela Merkel told parliament this morning that spending discipline and eventually closer fiscal union are the only way out of the crisis, but that would take time.
CHANCELLOR ANGELA MERKEL: (German spoken)
WESTERVELT: The German government has constantly made clear that the European debt crisis will not be solved overnight in one fell swoop, she said. That simply isn't possible.
In an address last night, French President Nicholas Sarkozy made his case for closer union, saying there can be no common currency without economic convergence, without which the euro will be too strong for some, too weak for others, and the eurozone will break up.
The president of the European Central Bank, or ECB, Mario Draghi, hinted yesterday that the bank could be ready to boost its support for the European economy if countries move toward what he called a new fiscal compact. But Chancellor Merkel today seemed to put the brakes on any swift action, reiterating her position that the ECB must remain independent to maintain trust.
And both Merkel and Sarkozy so far have been short on details of any new compact. They'll meet Monday in Paris ahead of a meeting December 9th in Brussels where fostering closer fiscal union will top the EU agenda. That will most likely involve treaty changes, which is a lengthy process. A new EU treaty would have to be approved by all 27 EU members - 10 of which do not use the euro.
Ferdinand Fichtner, a leading German economist, doesn't think European leaders can afford to take that long.
FERDINAND FICHTNER: European policymakers have pushed the euro area to the brink and I think right now there is no other alternative than letting the ECB intervene even more strongly.
WESTERVELT: By intervention Fichtner means the ECB should aggressively buy up more bonds of troubled eurozone countries and agree to be a robust back stop to restore market confidence. The eurozone, he says, risks being subject to a broader run by global investors. He's deeply worried that German and other eurozone leaders continue to underestimate the severity of the debt crisis and erroneously see it as slow moving.
FICHTNER: I think we can expect every day that one of the major banks in Europe breaks down because it has to correct the volume of the government bonds it has on its balance sheets. And if this happens we will have a banking crisis at least like the one we had in 20008 in the U.S. and you are quickly in a real recession.
WESTERVELT: A key problem, Fichtner says, is that markets can't see a way out for debt-troubled countries - how they'll be able to service their debt. Berlin has led the way in prescribing one main remedy for the fiscally weak - austerity, including big cuts in public spending in an attempt to stave off default or another major bailout. But some economists warn that eurozone leaders have proposed nothing to promote growth and offset austerity, which they warn is pushing debt troubled countries deeper into recession and closer to depression. Eric Westervelt, NPR News, Berlin. Transcript provided by NPR, Copyright NPR.