The
EU warned on Monday of an “economic and social disaster” if joblessness among
young Europeans continued to rise, calling for a joint effort to combat record
high unemployment in the countries which share the euro.
Joblessness
in the 17 country bloc was 11.4% of the working population in August, stable
compared to July on a statistical basis, but with another 34,000 people finding
themselves out of work in the month, the EU’s statistics office Eurostat said.
It was 16th straight monthly rise.
Europe
faces a month that may decide the success of the European Central Bank’s bid to
end the debt crisis, starting with the resumption of talks in Athens Monday
between Greece’s international creditors and the government.
Leaders
of the 17-nation euro area are confronting a tougher approach from the
German-led pro-austerity bloc and unrest in Spain over budget cuts and a
separatist movement in Catalonia. The first of three summits in the next three
months, called “crucial” by European Union President Herman Van Rompuy, is set
for Oct. 18-19, as investor sentiment toward the euro area that surged in
September is on the wane.
Political
discord has underscored the inadequacy so far of ECB President Mario Draghi’s
offer of unlimited bond buying to to overcome that squabbling that has
hamstrung crisis-fighting efforts
“People
are beginning to look at this in a more sober way” after the ECB bond-buying
plan and a German high-court decision releasing bailout financing spurred optimism
over the past month, Clemens Fuest, an economist at Oxford University’s Said
Business School, said in an interview Sunday.
Political
discord has underscored the inadequacy so far of ECB President Mario Draghi’s
offer of unlimited bond buying to to overcome that squabbling that has
hamstrung crisis-fighting efforts. With a report Monday showing the euro area’s
unemployment rate climbed to the highest on record at 11.4%, October marks
three years since Greece’s newly elected Prime Minister George Papandreou
revealed an unexpected hole in his budget, triggering the turmoil.
Spain’s
10-year bond yields fell 5 basis points to 5.89% as last week’s stress-test
results showing a capital deficit of 59.3-billion euros (US$76-billion)
bolstered confidence in Spain’s banking system. The euro rose 0.4% to US$1.2909
as of 11:54 a.m. in Frankfurt, recovering after losing 2% over the past two
weeks.
Rajoy’s
Plea
Spanish
Prime Minister Mariano Rajoy, under pressure to trigger the ECB’s new financial
weaponry by requesting assistance, pleaded over the weekend for national unity
as he hit out at nationalists for hampering crisis-fighting efforts.
“The
worst that can be done about the economic crisis that we are in at the moment
is to break economic stability,” Rajoy told a Sept. 29 rally in Vitoria in
Spain’s Basque region. Nationalists are trying to “cause more problems for
people than we have at the moment as if there weren’t already enough.”
Rajoy
suffered a setback last week when the president of the Catalan region, Artur
Mas, called elections to seek greater self-determination for the regional
government. Basque leader Inigo Urkullu, set to claim the regional presidency
in an Oct. 21 vote, also said his party wants more autonomy.
Spain
Budget
Amid
two days of protests in Madrid last week, Rajoy’s government unveiled a fifth
austerity package in nine months. Spain’s Budget Ministry announced plans over
the weekend to borrow 207.2-billion euros (US$267-billion) next year, widening
the country’s debt to 90.5$ of gross domestic product.
“I
don’t think we’re moving toward disaster, but it will become increasingly clear
that regaining competitiveness will last a long time for these countries.”
Fuest, who sits on an advisory panel for the German Finance Ministry, said by
phone.
I
don’t think we’re moving toward disaster, but it will become increasingly clear
that regaining competitiveness will last a long time for these countries
Leaders
need to put aside disagreements, particularly on how bailout funds can be
deployed to recapitalize struggling banks, EU Economic and Monetary Affairs
Commissioner Olli Rehn said. A statement last week by finance ministers from
Germany, Finland and the Netherlands that such funds can’t be used to cover
past capital gaps marked a retreat from a June agreement.
“It
seems there have been different interpretations about the June decision,” Rehn
said in an interview yesterday in Haemeenlinna, Finland. Rehn also warned
Finland not to prolong the crisis with its “hard-line stance on many issues.”
Finance
Ministers
The
resistance by the three ministers to covering “legacy assets” with bailout
funds would potentially upend the objective of most European governments to
unburden states’ balance sheets of bank-rescue funding — severing the
destructive link between bank and sovereign debt. It would also deal a blow to
Ireland’s campaign to reduce its debt load.
The
issue, along with the ECB bond-buying plan, will be discussed when European
finance ministers meet on Oct. 8-9 in Luxembourg.
Italian
Prime Minister Mario Monti waded into the fray as well last week, saying that
the ECB shouldn’t impose additional conditions on nations seeking assistance.
Concern about what extra conditions might entail has contributed to the
reluctance of countries such as Italy and Spain to tap the bond buying that
they themselves championed.
Oversight
should be limited to establishing “checks so the countries continue to behave
in that positive way,” Monti told Bloomberg Television in New York on Sept. 28.
“If this is the conditionality that will be finally delivered, should a country
be in a market situation suggesting its use, there would be nothing dishonorable.”
EU
Infrastructure
In
Athens, officials from the so-called troika of international creditors — the
ECB, the European Commission and the International Monetary Fund — returned to
continue their assessment of Greece’s creditworthiness. Prime Minister Antonis
Samaras meets officials at 6 p.m. local time, while Finance Minister Yannis
Stournaras meets at 2 p.m.
ECB
Executive Board member Joerg Asmussen became the latest troika official to
argue Greece may require more aid, saying on Sept. 28 that “there could be
additional need for external financing” because of economic turmoil, even with
a budget agreement by Samaras’ coalition government.
Greek
Deal
Samaras
has struggled to broker an agreement with the troika and his coalition partners
on a package that will include more than 7-billion euros of cuts to wages,
pensions and benefits in a country battling a fifth year of recession and with
nearly a quarter of the workforce unemployed.
With
a general strike drawing as many as 35,000 people into downtown Athens last
week, the government reached agreement on the bulk of a 13.5-billion-euro
budget package. They must now win over the troika to access 31-billion euros of
international support.
At
the October summit, Germany will also introduce a plan to replace EU infrastructure
subsidies with a common budget designed to assist indebted states in return for
conditions, Die Welt reported, citing unnamed EU diplomats. The plan would be
Germany’s answer to joint euro-area debt, or euro bonds, which Chancellor
Angela Merkel’s government has long opposed.
The
common budget could be funded by European taxpayers, as well as possible funds
from a planned financial-transaction tax, Welt reported on Sept. 29. Martin
Kotthaus, German Finance Ministry spokesman, declined to comment on the report.
“Intensive
discussions are going on,” Kotthaus said. “There are many ideas being
discussed.”
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