Sarkozy-Merkel pact achieved in Paris.
By Radu Cristian in Paris
The Paris-Berlin axis proves to be sound and decided to take the euro zone past the storm. Creating an economic supra-government of the euro zone and enforcing a tax on financial transactions are two of the points approached Tuesday evening, at Elysee, by the leaders of the two countries which, together, account for half of Europe’s Gross Domestic Product.
French President Nicholas Sarkozy, on one hand, willing to appear as the savior of the EU and also interested to capitalise an increased number of consensuses in view of the next presidential elections, and German Chancellor Angela Merkel on the other hand, interested to appease the polemic at home, were able to speak with one voice at the conclusion of a meeting that ended earlier than expected. A “perfect understanding” against any form of speculation, achieved precisely the day when Germany experienced a slowdown of economic growth that once again alarmed European markets, despite Merkel’s attempt to minimise it.
The dialogue centered on “ambitious proposals” – as they were defined by the French president. First of all, this was about founding an economic government formed by the 17 states in order to guarantee the stability of the euro zone. A body comprising the heads of state and government which will meet twice a year and is to be led by a president with a mandate of two and a half years. The first personality to take this mission would be Herman van Rompuy, the acting president of the European Council.
As regards the management of public accounts, France and Germany want all euro zone member states to adopt constitutional provisions forcing them to balance their budgets. Germany already has such legislation, while France and Italy are still discussing it. As mentioned by both Sarkozy and Merkel, the hope is that this goal is achieved until the summer of next year.
“The Monetary Union does not imply only rights, but also commitments” and “commitments and observance of the rules,” emphasised the French president, while evoking the financial efforts made by Italy and Spain as “very important decisions for the credibility of the euro zone.”
Finally, we should recollect the proposal about enforcing a tax on financial transactions. It was a clear idea of Nicolas Sarkozy, which he wanted to introduce on the agenda of the French presidency of G-20.
Regarding the much disputed chapter of eurobonds, Angela Merkel’s “nein” prevailed. “I have the impression that a universal panacea is being sought to cure the crisis,” said the Chancellor. “I do not believe in a magic solution; we need the commitment of all national parliaments that will follow the indications of the Commission.”
The press conference attended by hundreds of journalists was followed by a working dinner aimed at better defining the road ahead of the French-German plan meant to save the euro. As expected, everybody waited to see the verdict of markets on Wednesday.
Combined reports
The European markets were trading mixed, some of them reversing earlier losses, in afternoon trading Wednesday, even as the meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy failed to instil investor confidence, rttnews.com reports.
The Euro Stoxx 50 index of eurozone bluechip stocks is adding 0.21 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, is dropping 0.13 percent. The German DAX is losing 0.44 percent and the UK’s FTSE 100 is falling 0.42 percent. The French CAC 40 and Switzerland’s SMI are rising 0.97 percent and 0.51 percent, respectively.
Commerzbank is falling about 1 percent, while Deutsche Bank is flat. Linde is gaining 1.3 percent. Nomura cut its price target on the stock to 138 euros from 143 euros. Outside the main index, Wacker Chemie is losing 2.55 percent. Nomura reduced its price target for the specialty chemicals maker to 135 euros from 155 euros.
On the other hand, directionless is the apt word for Asia-Pacific markets this Wednesday after investors were largely underwhelmed by a Eurozone summit Tuesday, cnn.com informs. In Japan, the Nikkei closed down 0.55%. Major exporters Nissan, Toyota and Sony were heavyweights that dragged down the index, all falling between 1.5% and 2.5%. Honda throttled back to be the biggest loser of the Japanese export bunch, down 2.48%. In Greater China, Hong Kong’s Hang Seng lost earlier gains to close up 0.38%. Financials kept the index from falling into the red. Bank of East Asia and Bank of China were in the top five gainers all day. BEA closed up 4.36%; BOC rose 4.29%. China’s Vice-Premier Li Keqiang, widely expected to succeed Premier Wen Jiabao in 2012 elections, also visited the stock exchange. He vowed he would open up the mainland to more investment from the special administrative region. The Shanghai Composite was flat for much of the day, falling into negative territory only in the last hour of trading to close down 0.26%.
In Australia, the S&P/ASX 200 won the title for biggest gainer of the day, closing up 1.33%. Like in Hong Kong, financials led the way higher after good earnings reports from three of the “Big 4” banks. Westpac, Australia’s second largest bank, closed the highest with a gain of 1.28%, although it had been up by about 3% earlier in the day. ANZ Bank followed close behind with a gain of 1.13%. All in all, Asia-Pacific markets craved a compass as investors stayed away from major moves. Investor sentiment suggests the Merkel-Sarkozy summit failed to deliver much of any guidance. U.S. stocks opened higher on Wednesday, buoyed by earnings reports from consumer bellwethers like Target while gains in commodities and the euro indicated more willingness to add to risky assets, Mediafax reports. The Dow Jones industrial average DJI was up 21.04 points, or 0.18 percent, at 11,426.97. The Standard & Poor’s 500 Index .SPX was up 4.04 points, or 0.34 percent, at 1,196.80. The Nasdaq Composite Index .IXIC was up 4.71 points, or 0.19 percent, at 2,528.16.
Romania stocks up 1.5 pc
On the other hand the Romanian stocks rose 1.5 percent yesterday and have slightly recovered the Tuesday correction in a market where investors reacted to declines of Western European stock markets and raised prices to close affected by increases in the US futures market, according to Mediafax.
Barroso, Rehn offer support
Olli Rehn, the European commissioner for economic and monetary affairs, and José Manuel Barroso, the president of the European Commission said that the proposals put forward by Merkel and Sarkozy represented a “step forward in our common efforts to strengthen the governance of the euro area”, RFI informs. They said that they were in favour of the two leaders’ proposal to set up regular meetings of leaders of eurozone member states. They said that the European Commission would follow Merkel’s and Sarkozy’s proposal for a financial transaction tax by making their own recommendations “soon”. Barroso and Rehn said that the Franco-German call to enshrine the principle of a debt brake in national constitutions was “a further strong political commitment to the long-term sustainability of public finances”.
Lukewarm reaction in France
The proposals put forward by French President Nicolas Sarkozy and German Chancellor Angela Merkel for greater unity and fiscal discipline in the eurozone met with a lukewarm reaction Wednesday in France. The French media and the political opposition generally welcomed the leaders’ proposals. Sarkozy’s conservative Union for a Popular Majority party hailed the ‘joint commitment’ shown by France and Germany on reforming the eurozone. Many analysts – and governments including Italy, Greece, Belgium and Luxembourg – say the only way to stop the escalation of the eurozone debt crisis is to issue a common government bond with a single interest rate for all members – weak and strong.
Liberals lambast Sarkozy-Merkel deal
The European Parliament’s Liberal party bloc has derided reforms put forward by German and French leaders on Tuesday, arguing that the EU must move towards a federal union to save the euro currency, Gfs news reports. The Alliance of Liberals and Democrats for Europe however said the plans do not go far enough. The Liberals claimed a “real economic government” that is “in charge and can react effectively to all eventualities” must be created instead. “The European Commission must be rearranged to include a cluster of commissioners responsible for the eurozone and headed by the current economic affairs commissioner [Olli Rehn]. Furthermore, he should also chair the Eurogroup,” demanded the group’s president, Guy Verhofstadt, on Wednesday. “An economic government must also have tools at its disposal. Tools that are currently lacking. This includes the mutualisation of debt through the issuance of eurobonds and strict rules on public deficits that are policed independently from the member states.” The Alde bloc, the third largest in the European Parliament, added that action is “urgently required” to revert from making “the same mistakes of too little too late”. “It is a quantum step towards a federal union that is needed if the euro is to be saved. Today’s announcements are sadly well short of the mark,” Verhofstadt concluded.
Romanian bankers say new financial-transaction tax is to be applied on domestic market too
Central Bank governor’s adviser Adrian Vasilescu says such a tax will have a positive effect only if it is applied simultaneously in all countries, otherwise transactions will shift to places less taxed. “From my point of view, the sooner the better an agreement is reached,” Vasilescu said.
The President of the Romanian Banks Association, Radu Ghetea, is expecting details on how the new financial-transaction tax is going to work. “We need to find out how the new tax will operate, because the opening of a deposit is considered also a transaction. For now we don’t know much,” Ghetea said yesterday for Hotnews.
Stiglitz, Nobel Prize winning economist: Germany’s exit would allow the euro to fall in value
The euro will find it “very difficult” to survive without the implementation of a eurobond framework, Nobel Prize winning economist Joseph Stiglitz said Monday on BBC’s Newsnight programme. Stiglitz said the lack of fiscal room in the eurozone countries worst affected by the sovereign debt crisis will intensify the problem, unless a solution is found. Stiglitz, who won a Nobel Prize in economics in 2001, said eurobonds could be created with a limit and conditions attached to stop, what he described as, the failure of the present lending system. Stiglitz said also that Germany would suffer “severe consequences” if troubled eurozone countries failed to repay their loans. He added that it would be a more beneficial to the survival of the single currency if the Germans, rather than a troubled eurozone country, opted out of the euro. “It would actually be better for the euro if Germany left because the consequences of restructuring debt if Greece, Portugal or Ireland were to leave would be very great”, he added.