E.U. Details $957 Billion Rescue Package

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Frappant, gezien het onderstaande commentaar van een lezer, dat Mw.
Merkel het toch nodig achtte te wachten met haar besluit tot na het
sluiten van de stembussen in NRW.

Volgens mij had de helft of een derde van deze maatregelen, maar dan een
paar weken geleden, ook voldoende geweest.

Groet / Cees

May 9, 2010
E.U. Details $957 Billion Rescue Package
http://www.nytimes.com/2010/05/10/business/global/10drachma.html
By JAMES KANTER and LANDON THOMAS Jr.

BRUSSELS — European leaders agreed on Monday to provide a huge rescue
package of nearly $1 trillion in a sweeping effort to combat the debt
crisis that has engulfed Europe and threatened markets around the world.

In an extraordinary session that lasted into the early morning hours,
finance ministers from the European Union agreed on a deal that would
provide $560 billion in new loans and $76 billion under an existing
lending program. Elena Salgado, the Spanish finance minister, who
announced the deal, also said the International Monetary Fund was
prepared to give up to $321 billion separately.

Officials are hoping the size of the program — a total of $957 billion —
will signal a “shock and awe” commitment that will be viewed in the same
vein as the $700 billion package the United States government provided
to help its own ailing financial institutions in 2008.

The package was much higher than expected, and represented an audacious
step for a bloc that had been criticized for acting tentatively, and
without unity, in the face of a mounting crisis.

Underscoring the urgency of the situation, President Obama spoke to the
German chancellor, Angela Merkel, and the French president, Nicolas
Sarkozy, on Sunday about the need for decisive action to restore
investor confidence. And in a sign of the spreading anxiety, the United
States Federal Reserve, along with the European Central Bank and the
central banks of Canada, Britain and Switzerland, announced the
establishment of instruments known as swap lines. The swaps are intended
to ease pressure on European banks and money markets by providing more
liquidity.

In addition, the European Central Bank announced after the deal was
completed that it would intervene in the government and corporate bond
markets, also to provide liquidity.

The actions by the United States represented significant concern that
the European crisis could spill over and hinder the American recovery.

Stock markets in the Asia-Pacific region rose early on Monday. The
leading indexes in Japan and South Korea both rallied about 1.3 percent
soon after the deal was confirmed, recouping some of the losses they had
suffered last week. The Hang Seng index in Hong Kong gained 1.3 percent
soon after the open. In Australia, the benchmark S&P/ASX 200 climbed 2.1
percent.

The markets in Singapore and mainland China also opened higher.

New political complications in two of Europe’s most important countries
added to the challenge faced by the finance ministers as they met to
find a solution. In Germany, voter anger at the effort to save Greece
cost Mrs. Merkel an important regional election Sunday, undermining her
leadership, and in Britain the government remained in a state of
suspended animation because of the inconclusive Parliamentary elections
last week.

Financial unease has been mounting. Riots in Greece, ever-tightening
terms of credit and the unexplained free fall in the American stock
market last Thursday have compounded the sense that the European Union’s
inability to address its sovereign debt crisis might lead to the type of
systemic collapse that followed the fall of Lehman Brothers.

The debt crisis began with Greece teetering toward default, and fear
quickly spread about other weak economies like Portugal, Spain and even
Italy. Previous efforts by the European Union to shore up investor
confidence were viewed as too little, too late, with the markets making
clear that they were looking for a bolder plan.

Olli Rehn, the European commissioner for monetary policy, described the
arrangement as “a consolidation pact” that would be “particularly
crucial for countries under speculative attacks in recent weeks.” He
specifically mentioned Portugal and Spain.

Mr. Rehn said the I.M.F. would provide “half as much as the European
Union” following lengthy talks with fund officials.

“We shall defend the euro whatever it takes,” Mr. Rehn said.

What emerged from the discussions, which covered more than 10 hours,
represented a partial retreat from a system discussed earlier in the day
that would have radically expanded the powers of the European Commission
to raise funds.

Instead the ministers devised a system that would speed up the pace at
which states that use the euro could lend to one another, but on a
bilateral and voluntary basis.

One of the crucial decisions that ministers made was to create a
so-called special purpose vehicle to disburse the $560 billion in new
loans, should that support be required by member states in economic
difficulties.

The use of such a financial instrument reflected the difficulties that
individual European governments — and Germany’s in particular — had in
committing huge sums to a central authority. Having a body like the
European Commission, Europe’s executive body, oversee the economic
management of the bloc was seen by some countries as a clash with
national sovereignty.

In a statement after their meeting, the ministers emphasized that the
special purpose vehicle would expire after three years and that its use
would be strictly dependent on “national constitutional requirements.”

The language most likely reflected the reservations of some governments
to providing even more money than is available in bailout packages
already approved.

Ministers said their first line of defense against financial turmoil was
to employ an existing loan program, which they expanded by $76 billion,
and to use the further loans approved Monday as a “complement” as required.

While the sums being discussed are eye-catching, some bankers questioned
whether they would be enough to calm the markets over the long term. One
banker said that, with more European economies coping with rising
deficits, raising, guaranteeing or backing such a large sum would not be
an easy task.

But that concern may be addressed by a more forceful posture by the
European Central Bank. The bank has rebuffed calls to inject liquidity
into the markets by buying back European bonds, but in a statement
Monday morning it said it would take whatever steps were necessary to
smooth out the secondary markets for public and private debt, suggesting
it would have the flexibility to intervene in the markets as needed.

There were many complications in trying to forge a consensus. They
included defining the role of Britain, which lies outside the euro zone
and had said it would not help in propping up the euro, as well as the
European Central Bank. The fractiousness underscores the frailty of a
monetary union in which its richest member, Germany, is also the most
opposed to a financial rescue.

“The fact that they are worried is clear,” said David Marsh, the author
of “The Euro,” a book on the history of monetary union. “But I don’t
think that there is enough commitment or economic firepower in Germany
to provide the massive loan guarantees to satisfy the markets.”

Predictably, politicians blamed speculators for the market upheaval. The
Swedish finance minister, Anders Borg, said immediate action was needed
to tackle “herd behaviors in the markets that are really pack behaviors,
wolf pack behaviors.” Mr. Borg warned that volatility in markets could
“tear the weaker countries apart.”

Since it became clear that Greece would not be able to meet its
financial obligations and fears spread that other indebted nations like
Spain, Portugal and Ireland would have similar troubles, Europe has
responded fitfully.

Even now, despite the lashing rhetoric and the Sunday night meeting,
there is still a feeling that Europe should be doing more — notably with
regard to freeing the European Central Bank to go against its charter
and print money by buying back distressed European bonds from the
secondary market.

The meetings on Sunday represented an extraordinary convergence of
diplomatic activity, crammed into a tight time frame. Political leaders
including Mr. Sarkozy of France said early Saturday, at the end of an
earlier summit meeting, that a loan mechanism intended to restore
confidence should be ready by Monday morning. That effectively left the
European Commission and finance ministers a single weekend to change the
way the European Union operates its finances.

Mrs. Merkel of Germany attended a victory parade on Red Square in Moscow
on Sunday, a sign of how seriously Germans consider reconciliation with
Russia. Mr. Sarkozy and the Italian prime minister, Silvio Berlusconi,
opted not to attend, regarding the financial crisis as more urgent.

Mr. Sarkozy held a strategy meeting with ministers on Sunday.

“At stake is the euro and the euro zone,” a French official said. “We
need to give a clear signal to markets.”
---------------------------------------
1.
eem
Cambridge, MA
May 9th, 2010
10:12 pm
No, Mrs. Merkel did not loose her big state election, because of voter
anger over the Greek bailout. Mr Ruettgers, the prime minister of Nort
Rhine Westphalia, was trailing in the polls long before the Greek crisis
broke, primarily because of a party financing scandal. Also, Merkel's
coalition partner, the FDP, has dramatically lost in popularity for
insisting on unpopular tax-cuts (yes that does indeed happen!).

As for Greece, there have been no riots since Wednesday when the country
was shocked by three deaths that resulted from the fire bombing of a
bank. Both in Greece and Germany, a slight majority is in favor of the
European bailout, while still 66% of Germans are favorably disposed
towards the Euro. So your reporting is tendencious at best.
----------------------------------------
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeHrwqUq9G9A&pos=1
[deel weggelaten]

Budget Cuts
The new war chest would be used for countries like Portugal or Spain in
case their finances buckle. Deficits are set to reach 8.5 percent of
gross domestic product in Portugal and 9.8 percent in Spain this year,
above the euro region’s 3 percent limit. Both countries pledged
“significant” additional budget cuts in 2010 and 2011, which will be
outlined in May, an EU statement said.

The extra yield that investors demand to hold Greek, Portuguese and
Spanish debt instead of benchmark German bonds fell from euro-era highs.
The premium on 10-year government bonds plunged to 343 basis points from
as high as 973 basis points for Greece. It fell to 201 basis points from
354 for Portugal and to 94 basis points from 173 for Spain.

Europe’s financial leaders sought to master the euro’s stiffest test
since its debut in 1999 without wheelchair-bound Finance Minister
Wolfgang Schaeuble of Germany, Europe’s largest economy, who was rushed
to a hospital soon after the meeting started due to an adverse reaction
to new medication. Interior Minister Thomas de Maiziere got on a
last-minute flight to Brussels to take his place.

Merkel’s Meeting
As Merkel’s cabinet held a late-night meeting in Berlin on the euro
rescue, her party unexpectedly lost control of Germany’s most populous
state in a regional election, potentially costing her a majority in the
upper house of the federal parliament.

Goaded by Germany, the ministers made a fresh commitment to closer
monitoring of government finances and more rigorous enforcement of the
deficit-limitation rules.

The vow to push budget shortfalls below the euro’s 3 percent limit
echoes promises that have been regularly broken ever since governments
in 1999 set a three-year deadline for achieving balanced budgets. The
euro region’s overall deficit is forecast at 6.6 percent of gross
domestic product in 2010 and 6.1 percent in 2011.

Britain, the EU’s third-largest economy, won’t contribute to a euro
rescue fund, though it backs efforts to restore stability, Chancellor of
the Exchequer Alistair Darling said.

“When it comes to supporting the euro, that is for the eurogroup
countries,” Darling told Sky News.

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