Merkel: Crisis-hit Europe needs 'new stability culture'

19th May 2010, Comments 0 comments

Chancellor Angela Merkel called Wednesday for a radical overhaul of Europe's fiscal rules along German lines, warning of "incalculable consequences" for the European Union if the euro were to fail.

Defending Germany's slice of a near trillion-dollar package to prevent the troubles of debt-ridden Greece spreading to the rest of Europe, she said the single currency was facing an "existential test" as it plunges on the markets.

"The current crisis facing the euro is the biggest test Europe has faced in decades, even since the Treaty of Rome was signed in 1957," she said in a speech in parliament, referring to the treaty that created the European Union.

"This test is existential and it must be overcome ... if the euro fails, then Europe fails," she said, facing frequent heckling and jeers from opposition parties.

"The euro is in danger. If we do not avert this danger, then the consequences are incalculable and the consequences for the whole of Europe are also incalculable," she cautioned.

To overcome the turmoil that has battered the euro on the foreign exchange markets, the German chancellor proposed a "new stability culture" in Europe.

She added: "We need a comprehensive overhaul of the Stability and Growth Pact," the rules stating that EU countries should keep deficits below three percent of gross domestic product (GDP) and debt below 60 percent of GDP.

"The rules must be geared to the strongest, not to the weakest ... our (German) stability culture is tried and tested."

German Finance Minister Wolfgang Schaeuble will Friday propose a raft of measures to tighten the rules at a meeting with EU president Herman Van Rompuy.

Merkel said that European funds could be withheld from fiscal sinners and voting rights could be withdrawn. She also said that an "ordered sovereign insolvency procedure" needed to be established at the European level.

She confirmed a decision made Tuesday by Germany's securities market regulator to slap a ban on so-called naked short-selling in the shares of 10 financial institutions and eurozone government bonds.

Naked short-selling occurs when investors sell securities they do not own and have not even borrowed, hoping to be able to buy them back later at a lower price, thereby earning a profit.

She said the ban would be in place until Europe-wide regulations were agreed, prompting scorn from market players.

Saying that Merkel had "thrown her toys from the pram," Howard Wheeldon from BGC partners in London said she appeared "determined to undermine the euro and the euro economy at this particularly difficult time."

"It seems to me that all the German chancellor has managed to do by this affront to market integrity is succeed in fuelling more fears that the European sovereign debt crisis may just be even worse than it looks," he said.

The euro hit a new four-year low against the dollar after the move was announced.

Merkel also reiterated that she would campaign at the Group of 20 leading industrial powers for an international tax on the financial markets.

Frank-Walter Steinmeier, parliamentary head of the opposition Social Democrats, attacked Merkel for her conduct in the crisis, branding her "powerless and helpless."

"This is not the way we are going to get out of this crisis. This is a serious problem for our country," he said, attacking a chancellor who has come under pressure both at home and abroad since the Greek drama began.

Germany's parliament is expected to vote Friday on the country's share of the 750-billion-euro (914-billion-dollars) eurozone bailout package, which could be as much as 150 billion euros.

Merkel's party has a clear majority in the parliament, meaning the package is certain to pass.

© 2010 AFP

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