Euro Crisis Lull: Schäuble Warns Worst Is Yet to Come

October 25th, 2012

Published on Spiegel Online International, Oct. 23, 2012.

Europe’s debt crisis seems to have entered a calm phase, but that’s only an illusion, German Finance Minister Wolfgang Schäuble said on Tuesday. The worst is probably still to come, he warned … //

… Eye of the Storm?

Their pessimism contradicts comments made by European Commission Vice President Olli Rehn a week ago. In Bangkok for a meeting of finance ministers from Asia and Europe, he told the Bangkok Post that “there is no likelihood of any country leaving the euro zone.

The key message I told the ministers was that there is cause for prudent optimism. I think that the worst is over for the euro debt crisis.”

The divergent commentary on the state of the euro zone comes as Europe finds itself in what increasingly feels like the eye of the storm. Recent ECB pledges to buy unlimited quantities of sovereign bonds from debt-ridden euro-zone member states to lower their borrowing costs have relieved financial market pressure. However, Greece continues to be slow in implementing necessary reforms and will likely need funding beyond that which has already been pledged.

We Are All Sinners:

Potentially more troubling, bank problems in Spain threaten to force Madrid to seek a full bailout from the European Security Mechanism, the euro zone’s permanent bailout fund. And the situation isn’t getting any easier. On Tuesday, Spain’s central bank announced that the country’s gross domestic product (GDP) had shrunk by an additional 0.4 percent in the third quarter, following a similar plunge in the second. The negative economic growth promises to make it even more difficult for Madrid to reach its ambitious austerity targets.
Perhaps mindful of the headlines made last week when he seemed to rule out a Greek bankruptcy during a talk in Asia, Schäuble made it clear that even if the situation in Europe does worsen again, it will not be the end of the euro zone. “We are determined to do everything necessary to preserve the euro as a trustworthy currency,” he said. But reform, he added, must continue to be the priority. “We can’t get around the need for a mid-term reduction in sovereign debt,” he said.

As for Greece, Schäuble tread more lightly on Tuesday than he did last week. In the knowledge that “we are all sinners,” he said, it seems likely “that we can come to agreement on a policy that makes sense for Greece.”
(full text).

Links:

UN Calls to Fund Social Safety Nets in World’s Poorest Countries, on STWR,  Oct. 11, 2012;

10 Steps to Becoming a Global Citizen, on Share The World Resources STWR, July 18, 2012;

Is Truth a Tactic? on Dissident Voice, by Alexandra Morton, October 23, 2012.

India and China: Unsettled for a long time yet, Fifty years after a nasty high-altitude war, a border dispute remains unresolved, on The Economist, Oct. 20, 2012.

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