Tackling the Debt Crisis


Protests in Europe Ahead of Euro Summit

Riot police are attacked by petrol bombs during clashes in Athens.  

Riot police are attacked by petrol bombs during clashes in Athens.

Greece was hit by violent protests and a general strike on Wednesday and workers also demonstrated in other EU nations ahead of a summit on the euro. Merkel, under fire for her handling of the crisis, repeated her tough stance as Luxembourg’s foreign minister accused Berlin and Paris of “arrogance.”
Greece was paralyzed by a general strike and violent protests on Wednesday and trade unions staged demonstrations in France, Spain, Belgium, Luxembourg, Denmark and the Czech Republic against government austerity measures one day ahead of what promises to be a fractious European Union summit to agree on a permanent mechanism to handle future debt crises. In Greece, which has been undergoing radical belt-tightening to meet the conditions of its €110 billion bailout by the EU and International Monetary Fund in May, a demonstration by 20,000 people turned violent when masked protestors clashed with riot police, hurling petrol bombs and stones. Police responded by firing tear gas canisters and flash grenades.
Flights were grounded, public transport and government ministries shut down and hospitals worked on minimum staff.
The Greek parliament agreed on Tuesday to further reforms including wage cuts for state-owned bus and railway companies and a weakening of trade union power to negotiate industry-wide pay deals. In future, company level wage agreements are to take precedence.
News Blackout

Demonstrations were staged in Athens where authorities were on alert because previous protests have turned violent. In May, three people died in a bank that had been set on fire by rioting demonstrators. Greek journalists are also holding a 24-hour strike, causing TV, radio and Internet news blackouts. Newspapers will not be published on Thursday.
Less drastic union action is planned in other European countries before leaders of the EU’s 27 member states meet in Brussels on Thursday for the two-day summit.
In the Belgian capital, workers plan to form a human chain around the European Commission’s glass headquarters to symbolize the belt-tightening that they fear will destroy wages and cherished welfare systems. The Czech Republic is bracing for what could be its biggest strike in more than 20 years with unions saying more than 100,000 public sector workers would walk out.
Meanwhile, German Chancellor Angela Merkel, under fire in Europe for what many see as an uncompromising stance in the crisis, reiterated her outright opposition to the idea of issuing common European bonds to help out highly-indebted countries struggling with crippling interest rates on their debt.
In a speech to parliament on Wednesday, Merkel criticized euro bonds because they would entail a “collectivization of risks.” “The solution is more harmony and competitiveness in the member states,” she said.
‘Common Destiny’

Leading members of the main German opposition party, the center-left Social Democrats, have supported the idea of issuing euro bonds. Merkel has argued that they would lessen the pressure on countries to maintain fiscal discipline. German government borrowing costs would also likely increase with euro bond issues.
But Merkel again stressed her commitment to the single currency. “The euro is our common destiny and Europe is our common future,” she said.
In a strongly-worded interview published on Wednesday, Luxembourg Foreign Minister Jean Asselborn accused Germany and France of arrogance in their dealings with the EU. “I can only warn Germany and France against a claim to power that expresses a certain haughtiness and arrogance that disrespects the European principle of solidarity,” Asselborn told German newspaper Die Welt. “The direction of the EU must be supported by all 27 together and must not be dictated by the big countries.”
Merkel and French President Nicolas Sarkozy have come in for heavy criticism for agreeing to a common position on reforming the EU’s debt and deficit rules and then browbeating the other EU members into accepting them at the last EU summit in October. Merkel in particular has been accused of contributing to the market turbulence that drove Ireland into a bailout by insisting that private sector bondholders should help shoulder the burden of helping out over-indebted nations.
The Garden of Germany and France

Financial market players and officials from the IMF have been warning that piecemeal country-by-country bailouts, with loans at punitive rates linked to severe austerity programs, won’t solve Europe’s debt crisis because it will force the rescued nations into a spiral of cutbacks, tax hikes and economic decline. Luxembourg’s proposal of a large liquid, euro bond market could stop market speculation against weaker EU member states and reduce their borrowing costs — sparing the need for costly bailouts.
Luxembourg’s Asselborn said Germany and France were wrong to dismiss the euro bond idea. “It can’t be that the interests of Germany and France are turned into the European interest,” said Asselborn. “If something matures — such as the idea of euro bonds — that didn’t come from German or France, the appearance is given that it cannot be in Europe’s interest just because it didn’t sprout in the garden of Germany and France.”
“Frau Merkel is a clever woman,” he added. “I am sure that she will draw the right lessons from the past. She will realize that she hesitated too long with aid for Athens and the rescue of Greece became more expensive as a result. Germany will understand that these theatre performances of recent months aren’t useful. I have the impression that there have been scenes where France and Germany created problems ahead of an EU summit and then came to Brussels and showed theatrically: We have solved the problem and brought Europe forward.”

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