Eurocrisis: Did Merkel Give Up Too Much In the Summit?

July 2nd, 2012
in econ_news

Econintersect: The international press is having a field day in claiming German Chancellor Angela Merkel was outmaneuvered by the Southern European heads of state.  Italian Mario Monti would not agree to the growth pact unless the high interest rates were dealt with.  Per Spiegel OnLine:

"Are you trying to take us hostage?" Danish Prime Minister Helle Thorning-Schmidt said indignantly. Then the German chancellor spoke up and said: "That's not helpful." It's a sentence Angela Merkel reserves for serious situations.

Follow up:

The Italian prime minister should not believe that escalating the conflict would change anything, Merkel said, and pointed out: "I have to fly to Berlin at noon tomorrow for a vote in the Bundestag." But Monti stood his ground, knowing how much leverage he had. The markets were waiting for a decision. "Go ahead and fly home on Friday, and have them vote in Germany," he told Merkel. "I have until Sunday, and I'll wait until you return."

He didn't have to wait that long. Less than 10 hours later, he had the chancellor where he wanted her. Merkel relented and rubber-stamped what she had previously rejected. "A simple act of solidarity without getting something in return would be absolutely fatal to the overall development of the euro," she had previously insisted. For Merkel, it was the reddest of all red lines, and now she had crossed it.

Reuters opines:

By banding together in a powerful coalition to challenge Germany, the high-stakes meeting seemed to show, Mario Monti, Mariano Rajoy and Francois Hollande were able to wring major crisis-fighting concessions from a suddenly soft Angela Merkel.

But if the euro zone is still intact years from now, the marathon session in Brussels may be remembered as much for what the German leader extracted from her combative partners as for the bitter policies she was forced to swallow.

Read more:

BERLIN (Reuters) - At first glance, the big winners from Europe's latest euro-saving summit were the leaders of Italy, Spain and France.
Outfoxed by Club Med: German Dominance in Doubt after Summit DefeatChancellor Merkel suffered a bruising defeat at last week's Brussels summit after the leaders of Italy, Spain and France ganged up on her. Europe's power relations have shifted as a result. It looks like Germany will no longer be calling the shots in the EU. By SPIEGEL Staff
Continue Reading On »


Econintersect Recommended Eurocrisis Reads for Today:

LONDON (Reuters) - Barclays Plc Chairman Marcus Agius quit on Monday, saying "the buck stops with me" after an interest rate rigging scandal dealt "a devastating blow" to the bank's reputation.
ATHENS (Reuters) - Greece must not lose time trying to renegotiate its foreign bailout but focus on reforms instead, European Central Bank policymaker Joerg Asmussen said on Monday, in a blow to Greek hopes of winning quick concessions from its lenders.

Spain, France See Weaker Economies

Spain's finance minister on Sunday said the nation's economy likely deteriorated further in the second quarter and the French government warned it will cut its economic growth forecasts for this year and next.
Airbus plans to unveil an investment of roughly $600 million to build and equip a new assembly line in Alabama, marking the European plane maker's first major manufacturing facility on the home turf of U.S. rival Boeing, according to a person familiar with the talks.
Conditions in the UK manufacturing sector remained fragile in June. Although output volumes recouped some of the losses incurred in the previous month, demand remained weak and job losses continued. On a slightly brighter note, cost pressures fell sharply, with average input prices declining at the fastest pace since May 2009.

Ireland Sees Hope for Banks

The Irish government is mobilizing a campaign to seize advantage of a fresh euro-zone agreement to allow rescue funds to finance the currency bloc's broken banks, offering possible relief at the source of Ireland's financial straits.
June PMI data signalled that the downturn in the Eurozone manufacturing sector extended to an eleventh successive month. Production and new orders suffered further severe contractions, leading to the steepest job losses since January 2010.
LONDON (Reuters) - Euro zone manufacturing took another hefty blow in June and factories are preparing for worse to come, according to business surveys on Monday that showed jobs were cut at the fastest rate in two-and-a-half years.
June’s survey showed that the Greek manufacturing sector continued to suffer deteriorating health as mid-year approached, with output, orders and employment all continuing to fall at severe and accelerated rates.
Demand for cars made by struggling market leader Peugeot-Citroën continued to fall in June as the French car market—Europe's second biggest after Germany's—shrank at a slower pace than earlier in the year.


Steven Hansen

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