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Germany is divided over Europe’s bailout fund. Finland
may be jeopardising Greece’s latest rescue. And Italy is suddenly backpedaling
on austerity. Jean-Claude Trichet and Mario Draghi, the current and incoming
presidents of the European Central Bank, had a sharp message for Europe’s
leaders today as financial markets swooned: Get your act together.
At a conference in Paris focusing on the world three
years after the collapse of Lehman Brothers, Europe’s top central bankers
couched their admonishment in diplomatic terms. But the warning was clear:
Politicians are still not moving quickly enough to ensure that the European
debt crisis doesn’t become seriously worse. “The solvency of sovereign states
should not be taken for granted,” Draghi said as the bond yields of Greece,
Italy and other countries with weak finances jumped amid increased investor
nervousness. Global stocks also posted steep declines amid worries about the
health of the US economy and Europe’s sovereign debt woes.
Europe needs to “make a quantum step up in economic and
political integration,” Draghi said.
Trichet, who will be replaced by Draghi when his term
expires at the end of October, renewed his call for European politicians to
“imagine a federal government, with a federal finance ministry,” a setup that
would make the monetary union look more like the United States. But it is one
that Germany and other countries are wary of pursuing because it could
undermine their sovereignty. These institutions, Trichet added, would have the
power to “impose decisions on countries” whose own policy decisions threaten
the rest of the euro zone, he said.
Their remarks came as European investors and bankers,
including Josef Ackermann, the chief executive of Deutsche Bank, warned that
the renewed volatility in stock and bond markets was starting to feel eerily
like the days surrounding Lehman Brothers’ collapse. “All this reminds one of
the fall of 2008, even though the European banking sector is significantly
better capitalised and less dependent on shortterm liquidity,” he said today at
a conference in Frankfurt, Bloomberg News reported. His comments were echoed by
other players in the financial industry.
“I fear the probability is rising of acrisis in the fall,
because there’s no more political margin for manoeuvre,” Denis Kessler,
president of SCOR, a global reinsurance company based in France, said at the
conference in Paris.
Benoit d’Anglelin, who was a Lehman banker for 15 years
and is now amanager at Paris-based Ondra Partners, said he was seeing “extreme
risk aversion now” by pension funds and institutional investors, which have
been dumping “everything risk-related” since March, including a large number of
shares in French companies.
“It’s becoming unsustainable,” he said. “Imagine what
will happen if the selling gets more serious.” Despite pledges by European
leaders in July to pump billions of euros more into a European Union bailout
fund for debt-stricken countries known as the European Financial Stability
Facility, it is not so clear that parliaments in the 17 nations that are
members of the euro club will approve an expansion.
Voters disillusioned with Germany’s role in supporting
Greece and other troubled euro countries dealt Chancellor Angela Merkel’s party
a fifth defeat this weekend in local elections, raising concerns among
investors about whether she can muster enough votes to expand the fund.
On Sunday, Reuters reported, Slovakia added fuel to the
fire when a politician said the parliament would not vote until December at the
earliest on whether to expand the EFSF, much later than an early October
deadline targeted by European officials.
“We have an absolute and total need for all of the
decisions to be implemented immediately,” Trichet warned at the Paris
conference. Delays or uncertainty, Draghi, added, “risk re-igniting market
turbulence.” Indeed, with a debt crisis threatening to worsen in Europe, and
persistent economic weakness in the United States, markets have been moving
more quickly to punish countries whose politicians are slow to make crucial
decisions.
“This is not going to go away,” Draghi said.
In Draghi’s own country, Prime Minister Silvio Berlusconi
again unnerved investors last week by chipping away at a sweeping ¤45.5
billion, or $64 billion, package of austerity measures to help Italy stave off
a sovereign debt crisis. His backtracking drew a warning from Trichet over the
weekend to stay on course.
Meanwhile, Finland has also cast doubt on pledges of
European unity by insisting that it receive collateral from Greece in return
for aid, another issue that threatens to upend plans to expand the bailout
fund.
Draghi said that early warnings that the euro monetary
union was “incomplete” because it lacked political cohesiveness had been
papered over by banks and advocates who wanted to get the euro up and running
at all costs. “Now we are discovering that we can’t live with this
incompleteness any longer,” he said.
The
warning was clear: Politicians are still not moving quickly enough to ensure
that the European debt crisis doesn’t become seriously worse. sources,,,,