Germany and the U.S. were on a collision course on Tuesday night over the handling of Europe’s debt crisis. Berlin attacked plans to boost the EU rescue fund as a “stupid idea” and told the White House to sort out its own mess before giving gratuitous advice to others.
“I don’t understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense,” German finance minister Wolfgang Schauble said.
Wolfgang Schauble pointed out that it would be a folly to boost the EU’s bail-out machinery (EFSF) beyond its €440bn lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank.
“It’s always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the U.S. government,” he said.
Mr. Schauble advised Washington to mind its own business after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is “scaring the world”.
The harsh words are bound to further strain US-German relations.
US Treasury Secretary Tim Geithner has been a key player behind the push to bolster available funds in the European Financial Stability Facility to shore upItalyandSpain, fearing too little help will trigger a “cascading” financial crisis.
TheUScan lose patience, with unpredictable consequences, which is dangerous for Germany. The US Federal Reserve is currently propping up the European banking system in a variety of ways, including dollar swaps.
German Chancellor Angela Merkel was fighting in Berlin for her political life as the rump of lawmakers from her coalition vowed to reject the EFSF package, though the latest tally suggests she may squeeze by with her own majority. Angry dissidents suspect that secret plans are being withheld until after the vote.
Greek Prime Minister George Papandreou told German business leaders that his country would honour its austerity pledges, but also issued a veiled warning.
“The persistent criticisms levelled against Greece are deeply frustrating, not only at the political level, where a superhuman effort is being made to meet stringent targets in a deepening recession, but frustrating also for the Greeks, who are making these painful sacrifices.”
“Drastic measures have had a dramatic impact on the living standards of our citizens. Many Greeks feel they have little left to give. If people feel only punishment and scorn, this crisis will become a lost cause,” Mr. Papandreou said.
Mr Papandreou’s Pasok party passed a crucial vote on Tuesday to raise property taxes, but at a high political price. The party’s approval rating has fallen to 15pc in the latest Mega poll.
At the same time Greece was confronted with a new threat as it emerged that several eurozone members are demanding the private sector absorb bigger losses than originally agreed as part of a second bail-out.
Analysts claim that the Troika will have to approve the next €8bn tranche of aid for Athens in October whether or not Greece has complied fully with the terms. It cannot risk a showdown before Europe’s banks have beefed up their capital base, or before the EFSF is fully equipped to defend the rest of the system. [via The Telegraph and Newser]