Angela Merkel: Europe to Face ‘Toughest Hour Since World War II’

German Chancellor Angela Merkel said Europe could face its ‘toughest hour since World War Two’ – as new leaders in Italy and Greece are to form governments to decrease the damage from the eurozone debt crisis, moreover, Spain could now be at risk of a bailout.

Merkel dramatized the situation facing the euro zone trying to rally her conservative party behind the government at a congress in Leipzig. Photo: France Diplomatie/Flickr

Merkel told her conservative party: “Europe is in one of its toughest, perhaps the toughest hour since World War II”.

She also said she feared in case the euro failed Europe would fail either, and called on doing ‘anything’ to prevent it from happening. “If the euro fails then Europe fails, and we want to prevent and we will prevent this, this is what we are working for, because it is such a huge historical project.”

Nevertheless, in an address to the Christian Democrats (CDU), she offered no new ideas to resolve the debt crisis that has caused bailouts of Greece, Ireland and Portugal.

Being much criticized abroad, Merkel’s policy of bailing out struggling euro states in consecutive order but at the same time resisting pressure for bolder steps like euro bonds is stated by the party as a wise middle-course.

Having become chancellor six years ago, she was a witness of a dramatic transformation of the CDU that has made it almost unrecognizable from the free-market, business-friendly party that gathered in the same city of Leipzig back in 2003.

European Union governments have to come up with the effective strategy, with some form of massive, visible financial backing.

Prospects are still uncertain because the German government, the Bundesbank and hardliners in the European Central Bank have blocked key policy options.

These means issuing common euro zone bonds, mutualising the euro zone’s debt stock, letting the ECB create money to fight the crisis, or act as a lender of last resort, directly or via the euro zone rescue fund.

Merkel’s warning came as Italy’s Prime Minister-elect started talks today to create a new government of non-political experts.

As for Greece problems, new Prime Minister Lucas Papademos, (the leader of the main conservative party) has refused to sign a letter sought by European authorities pledging support for a new 130 billion euro bailout.

Lucas Papademos must win a confidence vote on Wednesday before euro zone finance ministers met in Brussels on Thursday.

Papademos’s task was illustrated on Monday when Antonis Samaras, New Democracy leader, said he was not going to vote for new austerity measures, explaining that the policy mix of spending cuts and tax rises agreed with international lenders should be changed in favor of economic growth.

“I agree with the goals to cut government spending … to reduce debt, to erase the deficit, to make structural changes. I do not agree with whatever stunts growth,” he said.

Most Greeks are for Papademos’s appointment, however, thousands of people angry at more than a year of austerity are expected to rally on Thursday, the anniversary of a 1973 student uprising that helped to bring down a 1967-1974 military junta.

That could complicate relationships between the troika and the new cabinet, as the demonstration can shut down central Athens and could possibly be the biggest rally in months of protests that have at times erupted into bloody clashes.

“They may come at the end of the week but nothing is fixed,” Carlos Martin Ruiz de Gordejuela, the representative of the European Commission’s mission in Greece, speaking about the troika team.

“It clearly doesn’t bode well for the future,” said Francois Cabau, an economist at Barclays Capital. “If we don’t see some resolution of the euro zone sovereign debt crisis, business confidence could go even lower.” [Via Reuters and The Daily Mail]

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