France and Germany: an unstoppable force meets an immovable object
It was supposed to be an evening for celebrating Jean-Claude Trichet's nine years at the helm of the European Central Bank (ECB).
France is very worried about the possibility of an involuntary haircut and a
'credit event' that will see its banks pushed to the limit of credit-worthiness
By Bruno Waterfield
www.telegraph.co.uk
11:00PM BST 22 Oct 2011
But as the orchestra played Beethoven's Ode to Joy in Frankfurt's Alte Oper, the city's concert hall, on Wednesday evening, the masterplan to rescue Europe's single currency was beginning to unravel. Europe's big test was about to become a whole lot more difficult.
Earlier the same afternoon, EU officials were confident that deep rifts between France and Germany on how best to save the euro could be patched under the warm glow of European unity. The day before, Nicolas Sarkozy, the French President, had warned that the divisions risked both "the destruction of the euro" and "the destruction of Europe". Looking sombre, President Sarkozy assured French MPs that he would be on a plane to Frankfurt to patch up a deal on increasing the "firepower" of the eurozone's European Financial Stability Facility (EFSF) bailout fund, currently worth €440bn.
Fate was to intervene when Mr Sarkozy's wife Carla Bruni entered Paris's La Muette clinic to give birth to their daughter, Giulia, on Wednesday afternoon. "That's it the meeting's off, Sarkozy can't miss their first child being born," despaired one EU aide in Brussels. But these are truly desperate times and the world of officialdom was to be proved wrong.
So acute was the split between France and Germany and so fragile the prospect of putting together a "big bang" fix for the euro in time for this weekend that Sarkozy abandoned his wife in the throes of labour to travel to Frankfurt. His urgent mission was to win over Angela Merkel, the German Chancellor, to supporting a French plan to "leverage" the EFSF by allowing it access to the theoretically unlimited funds of the ECB. Only by "backstopping" the EFSF with the ECB, he argued, could the eurozone deliver a "shock and awe" multi-trillion fund that could convince the markets with a pot big enough to recapitalise banks and to buy up distressed Spanish and Italian bonds. Naturally, "leveraging" the ECB also had the attraction of taking the heat off France's national budget, sparing the country's under-pressure AAA rating in the last critical six months before too-close-to-call presidential elections.
Sarkozy's dash from the maternity clinic was in vain. "Nein, nein, nein," was the answer from Merkel, with the support of Trichet, the French ECB chief. Europe's central bank could not be used to boost the EFSF because of a 20-year EU treaty clause forbidding the union from using its cash to save European governments. Unlike the EFSF, an ad hoc inter-governmental "special purpose vehicle" based in Luxembourg, the ECB is governed by the detailed chapter and verse of European law. "If the ECB could act like a national central bank that would make life a hell of lot easier, problem solved, but that runs up against the treaties and Germany's cult of the Bundesbank. Sarkozy was told 'game over'," said a senior EU diplomat.
Full story: http://www.telegraph.co.uk/finance/financialcrisis/8841912/France-and-Germany-an-unstoppable-force-meets-an-immovable-object.html
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
| 