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Germany’s Merkel and ECB official say $1 trillion rescue only buys euro zone time
By Juergen Baetz
THE ASSOCIATED PRESS
BERLIN — The C750 billion ($1 trillion) rescue loan package only bought euro-zone countries more time, but didn’t resolve the continent’s underlying debt problem, German Chancellor Angela Merkel and a European Central Bank official said.
The market turmoil will only calm down if the 16 member states of the euro zone reform their economies and reduce their deficits, ECB chief economist Juergen Stark told the Frankfurter Allgemeine Sonntagszeitung newspaper on Sunday.
Stark was quoted as saying about the loan package that “We bought time, not more than that.” The euro was not in danger “but in a critical situation,” he added.
Merkel on Sunday defended the loan package as the right step to stabilize the currency, but she also acknowledged it only bought time.
“We didn’t do more than buy time to get the differences in competitiveness and budget deficits of euro-zone countries in order,” she said at a conference of the Confederation of German Trade Unions in Berlin.
The speculation against the euro was only possible because of the differing economic strength and debt level of the euro-zone countries, Merkel said. “If you just ignore this problem, you won’t get things to calm down,” the chancellor added.
Merkel also told the union members that budget cuts in Germany are inevitable, calling the country’s current debt level unsustainable.
In the past few days, Merkel has repeatedly urged all euro-zone countries to trim their budget deficits. She also called for greater co-operation in financial and economic policy across Europe to ensure the currency’s long-term stability.
Defending the latest bailout package — which is unpopular among German voters — Merkel told daily Sueddeutsche Zeitung on Saturday that it’s not only the currency’s stability that is at stake, but the European idea as a whole.
“Because we know if the euro fails, then more is failing,” the paper quoted her as saying.
In the wake of Greece’s debt crisis, the euro has come under intense pressure because of fears about problems spreading to other heavily indebted euro-zone countries. The euro sank to near a four-year low against the dollar on Friday in late New York trading, buying $1.2355.
Another top German top banker, meanwhile, expressed doubts about Greece’s ability to repay its huge debts in an orderly fashion.
Dekabank’s chief economist Ulrich Kater on Sunday told German news Web site Handelsblatt that he shares the doubts voiced by Deutsche Bank AG’s chief executive Josef Ackermann.
“It will be very, very difficult for Greece to orderly repay its debt,” he was quoted as saying.
He said Greece’s new austerity measures and its lack of competitiveness were dooming its prospects for economic growth, making debt reduction difficult.
Ackermann, CEO of Germany’s biggest lender, caused outrage and nervousness on already jittery markets by publicly doubting Greece’s ability to repay its debt and mentioning the possibility of a debt restructuring.
In Athens, Greek Prime Minister George Papandreou rejected the banker’s view. “We are paying back the loans we are getting ... this saying that ’we are handing out money to Greece’ is not true,” he said in a CNN interview aired Sunday.
Papandreou said he is not ruling out taking legal action against U.S. investment banks for their role in creating the spiraling Greek debt crisis. “I wouldn’t rule out” going after the U.S. banks, he said.
The government and many Greeks have blamed international banks for fanning the flames of the debt crisis with comments about Greece’s likely default.
The Greek leader also said a parliamentary investigation will examine the rapid swelling of Greece’s debt and international banking practices to examine whether the financial sector engaged in “fraud and lack of transparency.”
Merkel, however, also pointed to the failure of past Greek governments. “What happened in Greece, the falsification of statistics over several years, is completely unacceptable,” she said.
The European Union and the International Monetary Fund have approved a C110 billion ($136 billion) bailout package for Greece.
In an interview with German news weekly Der Spiegel to be published Monday, the European Central Bank president said Europe’s economy “is in its most difficult situation since World War II or perhaps even since World War I.”
Jean-Claude Trichet said the euro zone’s debt crisis had provoked a market reaction similar to that at the height of the global financial crisis in 2008.
“The markets didn’t function anymore, it was almost like in the wake of the Lehman (Brothers) bankruptcy in September 2008,” Trichet was quoted as saying.
Trichet also urged European leaders to take further action to address the crisis’ underlying problems, calling for a “quantum leap” in control of financial and economic policy across the 16-nation currency zone.
“We need improved structures, to avoid and sanction wrongdoing,” Trichet was quoted as saying.
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Associated Press Writer Demetris Nellas in Athens contributed to this report.