Aug 21, 2011

Germany, France Push for New Euro Zone 'Economic Government'

Chuck MisslerBy Dr. Chuck Missler
Koinonia House

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The cover of the August 22, 2011 issue of Time declares "The Decline And Fall of Europe" in white letters on a very red photo of London burning. Europe is in trouble, and it isn't just London. Europe's debt is massive, and Germany is in no mood to bail out its weaker euro zone neighbors. The leaders of France and Germany met Tuesday to seek some solutions to the financial problems Europe is facing, with disappointing results.

European Council President Herman Van Rompuy (left) is tipped to head the European economic government proposed on Tuesday by French President Nicolas Sarkozy (C) and German Chancellor Angela Merkel.The leaders of Europe's two biggest economies, German Chancellor Angela Merkel and French President Nicolas Sarkozy, joined each other in Paris on Tuesday with a promise to do something as Europe's sluggish economic growth slows to a standstill. The US economy is struggling, but at least it is moving a little. Europe isn't, and the poorer states in the euro zone - the European states tied to the euro – have reached out to their healthier neighbors Germany and France for help.

Financial experts have said that the euro zone needs to take decisive action to wrap ropes around the swelling debt crisis in Europe, but Merkel and Sarkozy were seen as taking a passive position Tuesday. They gave their verbal support to the euro, seeking to shore up the confidence of investors. They also sought greater governance of the euro zone, wanting the euro nations to give up more national sovereignty on economic and fiscal decision-making, handing that power over to a euro zone government. Germany and France don't want to lose their own national sovereignty, but they want the Continent's weaker economies to have their decisions made for them.

Merkel and Sarkozy were criticized for not even considering the possibility of a eurobond or larger bailout fund for suffering neighbors.

The eurobond, backed by all 17 euro zone neighbors, would spread the Continent's debt across the euro-nation membership and would allow struggling countries to be able to borrow money. Merkel and Sarkozy, however, dropkicked that idea. German officials explained the position that it would only be enabling fiscally irresponsible countries whose bad policies got themselves into the current mess in the first place. Germany and France do not want to cosign for their less successful neighbors and lose their own shirts.

Rather than greater federalism, some think that the drowning country of Greece should leave the euro and return to its drachma so that it can control its own inflation. Since its debt it tied to the euro, however, the debt amount in drachmas would become enormous when Greece did devalue its currency. At the same time, if the euro zone were to collapse and the 17 euro zone nations returned to their own currencies, wealthier Germany would have to compete, for instance, with Italy's lower cost of goods due to its weaker currency. Right now Germany is benefiting because it isn't having to completely prop up the other euro zone countries, and yet it doesn't have to deal with as much competition.

Merkel and Sarkozy sought more unity in the 17-member euro zone, but the group has struggled to get anything done because all votes have to be unanimous.

The Wall Street Journal reported that treasuries had climbed to near all-time highs after the "underwhelming" Germany-France summit.

Alan De Rose, head Treasury trader at Oppenheimer and Co. in New York, said the Treasurys rally showed that "more indecision amongst European political leaders was going to lead to more market turmoil and slower growth."

Related Links

A Proposed “Economic Government” Would Integrate Europe To A Degree Not Seen Since The Roman Empire - The American Dream
French, German leaders urge elected eurozone chief - AP
Merkel Says She’ll Resist Pressure for Euro Bonds - Bloomberg
Germany, France Seek 'True European Economic Government' - Voice of America
Van Rompuy tipped to chair new 'economic government' -