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As Ghana
inches towards the quest for a single currency
Perhaps the policy makers and their advicers may wish to
take note ...says Nana Otuo
Funds lead euro exodus
London (UK) – 16 May 2010 – The Sunday Times - The eurozone
is facing another torrid week as investors seek to dump
peripheral sovereign bonds and the single currency fights
negative sentiment.
A report this weekend from UBS suggests the appetite for
holding euros among both private-sector institutions and
managers of official currency reserves is fading.
“This month’s €750 billion package of support for the
eurozone isn’t sufficient to turn the tide of the euro,”
said Mansoor Mohi-uddin, managing director of foreign
exchange strategy at UBS Investment Bank.
This was the verdict of both private-sector players, who now
have record shorts, and reserve managers around the world,
said Mohi-uddin. “This suggests the decline in the euro will
keep going,” he added.
UBS predicts that the euro will drop from its current $1.23
level to $1.10 next year. Others fear it could drop to
dollar parity or below.
Commerzbank, the German bank, expects the euro to stabilise
and end the year around current levels. But it warns that
conditions could arise for a slide to parity with the
dollar.
Institutional investors dumped the sovereign bonds of
peripheral eurozone countries this weekend as the value of
the euro slumped to its lowest level since the collapse of
Lehman Brothers in September 2008.
Major investors led the sell-off, rattled by reports of deep
divisions between France and Germany over the Greek bailout
and the details of the ensuing €750 billion eurozone bond
market rescue. Reports suggest Pimco, the investment group,
dumped large tranches of Club Med debt.
In Dublin, the National Treasury Management Agency is still
expected to press ahead with attempts to raise €1.5 billion
in fresh debt for Ireland on Tuesday. The four- and 10-year
bonds carry an initial coupon of between 4% and 4.5%.
Portugal succeeded in placing €1 billion worth of bonds last
week but this was during the initial market euphoria
surrounding the rescue deal. Stock markets fell over
concerns that austerity measures would hit growth.
Olli Rehn, Europe’s economic and monetary affairs
commissioner, said the €750 billion crisis mechanism agreed
last week should be made so unattractive that countries
would not want to use it.
“It is essential that we prepare ourselves for the
worst-case scenario. But of course there is the issue of
moral hazard,” he said at the annual meeting of the European
Bank for Reconstruction and Development. “This mechanism
must be made so unattractive that no EU leader will resort
to it.”
A second concern for Ireland is that EU rules on state
guarantees for bank bond issuance are being made much
tougher.
A draft document prepared for EU finance ministers calls for
mandatory reviews of “the long-term viability” of banks
using such guarantees and for higher guarantee fees. This
could hit Anglo Irish Bank Corp and Irish Nationwide.
‘Mummy’ Merkel battered as Germans lose faith in EU
After bailing out Greece and now the euro, Germany is fed up
with being Europe’s paymaster
London (UK) – 16 May 2010 – The Sunday Times - Germans are
proud of working for global brand names such as
manufacturing firms such as Mercedes-Benz and are outraged
that Angela Merkel is giving taxpayers? money to a country
with little industrial output
GISELA and Susi, thirtysomething civil service secretaries,
were shivering over their sausages in what the tabloids
labelled the “most miserable May of the millennium” and
planning their summer holidays. “I know where I’m not
going,” one of them said. “The hotels, service and food
aren’t as good as Turkey but the prices are as high as
Italy!”
As Berliners bravely sat on the banks of the River Spree in
unseasonably cold weather for the Ascension Day holiday that
traditionally marks the start of summer, they had no doubt
that the cold wind was blowing from the sunny south: Greece
in particular.
The multi-billion-euro payout for Greece, followed by an
even more expensive rescue package for the threatened single
currency, has created the greatest political climate change
in a generation.
Suddenly Germans are asking questions about the European
project that has been the bedrock of their politics for 60
years, leaving Angela Merkel, the chancellor, under fire
from the electorate, the opposition and her own party.
It took a stand-up display of table-banging aggression from
President Nicolas Sarkozy and an intervention on the
telephone from President Barack Obama to get Merkel to agree
to the euro package.
“We foot the bill for EU disaster,” screamed a headline in
Bild, the tabloid newspaper. Christoph Schmidt, a government
economist, responded by warning: “Germany cannot become
Europe’s paymaster.”
The tension between Germany and France threatened to spill
over at a Brussels summit last weekend when Merkel and
Sarkozy had a furious row. According to observers, it ended
with Sarkozy threatening to leave the euro.
“It was a stand-up argument,” an official told El Pais, the
Spanish newspaper. Sarkozy, furious at Merkel’s reluctance
to sign up to a safety net of €750 billion (£644 billion),
was shouting and bawling at Merkel and smashed his fist on
the table. “It was Sarkozy on steroids,” one witness said.
Dubbed “our Iron Lady” — or just “Mutti” (Mummy) within the
Christian Democratic Union (CDU) that she dominates — Merkel
returned to Germany accused of having given too much, too
late.
Her timing was also poor. The euro talks, combined with the
Greek bailout, led to a CDU defeat in North
Rhine-Westphalia’s state election last weekend and with it
the loss of her majority in the upper house.
The stakes could scarcely be higher. “If the euro fails, it
is not only the currency that fails,” Merkel warned last
week. “Then Europe fails. The idea of European unity fails.”
Sarkozy’s petulant outburst won the day — Merkel was forced
to back down on the rescue — but in the longer term it may
undermine his objective of a more closely integrated Europe.
There is now a pervasive awareness in Germany that the
post-war consensus of subsuming its national identity — and
national self-interest — in the “common European house” no
longer gets a popular rubber stamp.
“We give millions to countries where they have big annual
pay rises, perks for civil servants and soaring pensions.
I’ll have to work to 67 for a pension that might not be
enough,” complained Ulrike Daunheim, a 38-year-old shop
assistant and Bild reader.
“Greece has no industry worthy of the name, makes no
products with prospects on a global scale and carries out no
research to discover any,” was the verdict of the
left-liberal Der Spiegel news magazine.
The contrast is vividly demonstrated by the Berlin
Automobilforum on Unter den Linden showcasing the best of
Volkswagen, including Skoda, Seat, Bentley and Bugatti — a
pan-European empire owned and run from Germany.
Part of the public outrage over Greece comes from the shock
felt over its financial duplicity in a society based on
trust and honesty: Germans face no barriers on tubes or
trains, while soft drinks and beer are sold from open
fridges on the street into the small hours.
This is not to say that German businessmen are incapable of
adapting to local conditions. Prosecutors are examining
allegations of bribes paid to Greek officials to secure
contracts for the sale of submarines, tanks and equipment
that got the Athens underground railway running for the 2004
Olympics.
The paradox is that if German companies were overpaid at the
expense of the Greek taxpayer, it is now German taxpayers
who have had the bill passed on to them. Germany’s share of
the euro bailout package is €120 billion, but it is already
expected to rise by a further €25 billion.
The greatest fear in German minds is that by agreeing to buy
bonds issued by countries such as Greece, which have been
reduced to “junk” status, the European Central Bank (ECB)
will weaken the euro and risk rampant inflation.
That is a word that strikes a chill in the heart of every
citizen of a nation that has twice in the past 100 years
seen its money made worthless and its savings evaporate,
most notably during the 1920s.
During a 16-way conference call of ECB board members that
had to endorse Merkel’s and Sarkozy’s agreement, Axel Weber,
the Bundesbank president, pointed out it was mostly German
money and came close to slamming down the telephone on his
colleagues.
The markets were boosted only temporarily. Josef Ackermann,
chairman of Deutsche Bank, has warned that Greeks may not be
able to meet their debts no matter how much more they are
helped.
Hardly surprising, German critics say, that Sarkozy can
claim the deal as a “95% French idea”, given the role of his
compatriots Jean-Claude Trichet, the ECB president, and
Dominique Strauss-Kahn, head of the International Monetary
Fund.
Merkel is being urged to insist that the “stability pact” is
hedged with strict controls on national economic policies.
By the end of last week she was even coming round to a
suggestion by Olli Rehn, the Finnish EU commissioner, that
national budgets should be submitted to Brussels first to
keep an eye out for further Greek-style accounting.
Ulrike Guérot, head of the European Council on Foreign
Relations think tank, said: “Germany has provided the oil
that greased Europe. If we don’t want to do that any more,
we need to say so. But that means we no longer want to see a
Europeanised Germany, but a German-style Europe.”
This would mean a halt to European Union expansion — and
certainly to eurozone expansion to dodgy economies. Friday’s
Frankfurter Allgemeine Zeitung, the epitome of conservative
economic orthodoxy, suggested that if others do not toe the
line the euro could retrench to a few economically
compatible countries, or else Germany should leave. That
would finish the euro and make Sarkozy’s threat to pull out
if he did not get his way look a bad joke.
The creation of the euro, within a decade of East Germans
being given the coveted western D-mark, was sold as a “thank
you” for German unification: in effect extending the stable
German currency to the rest of the continent.
The question being asked this weekend is whether or not
Merkel is standing up strongly enough for Germany’s own
interests.
Her allies in the pro-business Free Democratic party (FDP)
are furious that their promise to cut taxes may be ditched
and say they may rewrite their coalition agreement. Otto
Solms, the party’s finance expert, has threatened revolt
against Merkel’s support for a financial transaction tax.
Within her own party, Roland Koch, prime minister of the
state of Hesse, whose economy is almost as big as that of
Greece, says he will be forced to shelve planned free
childcare for the under-threes.
The Christian Social Union (CSU), Merkel’s Bavarian sister
party, is also up in arms. Christine Haderthauer, the
state’s social affairs minister, has accused Merkel of
“acting like an arsonist and thinking like a dinosaur”.
Horst Seehofer, the CSU leader, has complained he heard
about the euro rescue pact “only on my car radio”.
The argument is about the future of the European idea.
Sarkozy felt Merkel was wrong to leave behind the euro
crisis to attend a VE Day anniversary ceremony in Moscow.
For Merkel that was missing the point: the European project
has been about superseding the national rivalries that lead
to war.
For 60 years Germans, aware of their own past, were happy to
pay the pipers of peace.
The mantra of Britain, which always argued that the EU
should be expanded without economic integration, was “wider,
not deeper”. This may have allowed countries such as Greece,
with a different economic culture, to be embraced all the
more readily.
German politicians believed the euro meant stronger economic
bonds that would ultimately imply political union — and that
the dilution of national sovereignty would be driven by the
bigger partners.
That is now in doubt. In the midst of the crisis Wolfgang
Schäuble, Merkel’s finance minister, was taken to hospital
after suffering an allergic reaction to medication.
The same fate may yet await the European project.
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