Europe battles divisions over crisis

20th May 2010, Comments 0 comments

Europe battled divisions in its ranks over its debt crisis on Thursday as Germany ordered a crackdown on financial markets and protestors challenged austerity cuts in Greece and Spain.

Global stock markets suffered a fresh sell-off as a surprise jump in US jobless claims added to concerns that Europe's unity on tackling its spiralling debt crisis were beginning to unravel.

With stocks already reeling from a surprise and unilateral move by Germany to curb speculative trading, Chancellor Angela Merkel pressed the case for a tax on financial markets to help tame excesses blamed for the global economic slump.

"We have now stated that we will campaign for a tax on the financial markets and we will campaign for that at our (G20) summit in Canada," she told a conference on financial regulation.

Merkel already jolted jittery financial markets on Wednesday when Berlin banned so-called naked short selling -- the sale of bonds or shares by market players who neither hold the security nor have borrowed it to make their trade.

The unexpected jump on Thursday in US jobless claims compounded concerns Europe's debt could trigger a new economic slump, driving most European share indices to close about two percent lower while Wall Street shed about the same amount.

"The German short ban has emphasised that Europe is not unified and this is at a juncture when it really, really needs to be," said Credit Agricole CIB analyst David Keeble.

Altium Securities analyst Ian Williams said "Merkel, if anything, intensified her rhetoric even as her eurozone partners remained unimpressed with Germany's unilateral actions.

"The lack of co-ordination across the supposed partners within the single currency zone is especially damaging to investor confidence," Williams said.

French Economy Minister Christine Lagarde told RTL radio the German decision "should have been taken in concert" with other European nations and was in itself "open to debate," Lagarde said.

Lagarde distanced herself from Merkel's remark Wednesday that the euro was "in danger", saying she "absolutely" did not believe that to be true, prompting talk of a rift between the close allies.

But hours later, the same minister was falling over herself to make amends, telling an international conference in Berlin -- via video from Paris -- that the two countries were "on the same page" when it came to financial regulation.

Addressing her German counterpart, Wolfgang Schaeuble as "Dear Wolfgang", she said she wanted to "celebrate the very strong alliance that ... we have forged over time.

"This has really been the continuation of a relationship that we have built over the years."

The crisis in Europe is being driven by debt and public deficit levels which have soared way above EU rules as governments increased spending to get their economies through the worst recession in decades.

Now the bill is coming home to roost, with markets demanding ever higher rates of interest to provide money to such governments. That in turn makes the state finances worse and eventually led Greece to call in the EU and IMF to organise a 110-billion-euro bailout earlier this month.

On Thursday, French President Nicolas Sarkozy also took up the fiscal cudgels, saying France's constitution should be altered to compel new governments to sign up to a timetable to balance their budgets. And he said he wanted to freeze public spending for three years.

"The restoration of public finances should not just be an undertaking of the government, but of the nation. It should be a long-term engagement and for that the governance of our public finances must change," Sarkozy said. Germany already has such a curb on overspending.

Meanwhile, public outrage in countries already facing swingeing spending cuts flared with protestors hitting the streets in Greece and Spain.

More than 20,000 Greeks demonstrated in Athens and other cities in the second general strike this month, demanding the Socialist government to drop controversial pension reform and pay cuts.

More than 1,700 extra police were ordered into central Athens alone as authorities sought to avoid a repeat of violence that saw three bank employees killed when their branch was hit with a petrol bomb on May 5.

Spain also braced for street protests by public service workers against a tough government austerity plan aimed at reining in the public deficit amid fears of a Greek-style debt crisis.

The country's main unions has called for demonstrations in front of government buildings throughout the country at the same time as the government is set to approve the belt-tightening plan later Thursday.

© 2010 AFP

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