Thursday, October 27, 2011

Fears of contagion loom despite EU deal

European Union leaders finally formulated a deal to prevent the eurozone from collapsing into chaos yesterday, but it is still only a deal in principle. Nonetheless, it is more than many hoped for though less than others would have ideally liked to see.

There are three main issues that have been tackled. One major sticking point was the Greek debt. But after talks in Brussels it was accepted that private banks holding much of the Greek debt would have to accept a loss, or 'haircut', of 50%.

It was also agreed that banks must raise more capital to protect them against future losses resulting from subsequent government defaults. In addition the European leaders approved a mechanism to boost the eurozone's bailout fund to some €1 trillion [£880 billion, $1.4 trillion].

The Euro Summit Statement [PDF] released late yesterday was welcome news for the stock markets. Shares rose in early trading but there is still a feeling that there is still a long way to go before the storm is over.

There are fears that the debt crisis affecting Greece could spread, enveloping other countries where the economy is far from stable.

Fears of contagion

Many are still keeping a watchful eye on Italy and there have been demands that prime minister Silvio Berlusconi implement economic reforms and balance his country's budget.

Giovanna Pancheri, an Italian journalist, speaking on Sky News on Tuesday said Berlusconi was having difficulty in implementing austerity measures in the face of public hostility.

As well as the contentious issue of increasing the pension age to 67 the public were opposed to other cuts such as the health system [BBC].

Additionally, Italy had been asked to provide details of its plans for tackling its huge public debt, amounting to some €1.8 trillion, before the summit began on Wednesday. While the ruling coalition, led by Prime Minister Silvio Berlusconi, was reported to have reached a last-minute limited deal on economic reforms it was a matter of whether such proposals would be accepted by the rest of the EU.

Berlusconi's coalition partner, Northern League leader Umberto Bossi, said late on Tuesday, "In the end we have found a way. Now we will see what the EU says."

Italy, the third largest economy in the eurozone, needs to issue some €600 billion in bonds over the next three years to refinance maturing debt. And financial help is only likely to be offered if it follows through with tough austerity measures demanded as a precursor by Germany.

But Italy wasn't only battling with Germany and other European member states. Yesterday Italy's parliament descended into chaos as politicians fought over pension reforms [CNN / Daily Mail].

At least two politicians from the Northern League, the main coalition partner in prime minister Silvio Berlusconi's government, exchanged blows with members of the opposition FLI party, the Italian news agency ANSA reported.

Photographs from inside the parliament chamber showed two male deputies with their hands at each other's throats, while other members of parliament tried to pull them apart.

The fight was reportedly caused by televised remarks made by House Speaker Gianfranco Fini, of the FLI party, in which he claimed that the wife of Northern League leader Umberto Bossi had retired at age 39, ANSA said.


The financial disaster sweeping across Europe is bolstering euro-scepticism in Britain. The island nation has been hostile to the single currency from the start, and there is a rising swathe of public opinion suggesting that Britain should pull out of the European Union completely.

Despite arguments for the importance of Britain being a part of Europe, there is almost a sense of euro-phobia displayed in the country especially in the mostly euro-sceptic press.

One frontpage headline in Thursday's Daily Express even warned that Europe could descend into war because of the economic crisis. Twisting the grave warnings from German Chancellor Angela Merkel, the Express ran with the line,  "Germany warns of war in Europe".

"Germany issued a chilling warning yesterday that war could again engulf Europe, as a summit to save the euro descended into chaos," the Daily Express said in its opening line.

However, Angel Merkel's statement to the German parliament was not quite as strong as the Express maintained. "What is good for Europe is good for Germany," she had said. "Another half century of peace and prosperity in Europe is not to be taken for granted. If the euro fails, Europe fails. We have a ­ historical obligation: To protect by all means Europe's unification process begun by our forefathers after ­centuries of hatred and blood spill. None of us can foresee what the consequences would be if we were to fail."

"It cannot be that some time in the future they say the political generation responsible for Europe in the second decade of the 21st century has failed in the face of history."

It wasn't just the tabloids that focused on Merkal's supposed apocalyptic warning. The Daily Telegraph led with reports of the German leader's fears that a collapse of the euro could threaten peace.

Most of the tabloids carried the eurozone story on its inside pages with the Amy Winehouse inquest [Sun / Mirror] and Jeremy Clarkeson affair [Sun / Mirror] dominating most of the red tops.

When reporting on Europe many tabloids tend to paint a gloomy picture while failing to acknowledge the failure of the Euro wil directly affect Britain. On Tuesday the Sun suggested the eurozone was plunging back into recession, something which would affect Germany and its manufacturing base. There was however no mention as to how Britain's economy might be affected should the eurozone fail.

Even generally pro-European papers such as the Independent reported on the apparent lack of progress made by European leaders in their efforts to find a solution to the eurozone debt crisis and suggested the eurozone was "living on borrowed time".

The fracas in the Italian parliament was not too far from many front pages with pictures of the clashing politician emblazoned  across both the i and the Guardian [Papers].

The foreign press was of course focused on the summit. Liberation in France carried the headline "Le sursaut ou le chaos" [literally "the burst or chaos" but transliterated as "Putting out fire while rebuilding the house"] and suggested that leaders had no choice other than to move towards federalism [Réunis pour un ultime de crise, les dirigeants européans n'ont d'autre choix qu'une avancee vers le fédéralisme].

Le Monde also running with the same headline in an opinion based article published Tuesday, it said France faced the choice of a federalised 'German Europe' or a fragmented Europe. Only the former was a real option in the face of giants such as China and the United States, the paper asserts.

The fathers of the euro perhaps oversold the opinion that it was the key to absolute happiness, Le Monde says. It has not been, but attributing blame was not the current priority. "It is of course a matter of urgency to save the euro," the op-ed states, "It is too late to regret (past decisions). The fire is there. We must stop the fire and begin to rebuild the house. It is a matter of urgency."

The deal as it stands was welcome news for some. Stocks rose in early trading on the DAX and CAC as well as the FTSE after two days of uncertainty.

There are other factors which European politicians will have less control over. Continuing flooding in Thailand has not only killed hundreds and caused widespread misery, it has shut thousands of factories and may soon affect exports of electronic products [Reuters / Bloomberg]. There were similar issues following the disaster which befell Japan earlier this year resulting in a slow of production around the world as manufacturers awaited delivery of vital components from the Far East.

Patching up a failing banking and economic system is one thing, controlling mother nature and trying to stop the effects of earthquakes, tsunamis and torrential rain is another.

tvnewswatch, London, UK

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