Germany sounds alarm as euro crisis spreads

Thursday 14 June 2012 16.41
Merkel says Germany can not alone save the euro zone
Merkel says Germany can not alone save the euro zone

Germany warned it cannot not save the euro zone alone as borrowing costs left Spain on the ropes and Italy and France met for critical talks on new formulas for beating the debt crisis.

German Chancellor Angela Merkel sent a clear message that Germany's financial power could not be the only way out of the crisis.

"Germany is strong, Germany is an engine of economic growth and a stability anchor in Europe. But Germany's powers are not unlimited," she said in a speech.

She was outlining Berlin's position ahead of the June 18-19 G20 meeting in Mexico.

She was outlining Berlin's position ahead of the June 18-19 G20 meeting in Mexico.

Merkel's firm warning came as French President Francois Hollande was in Rome for talks with reformist premier Mario Monti on growth strategies and EU integration and four days before crucial elections in Greece which could see the country exit the euro zone.

Hollande's visit comes amid fresh fears that euro zone leaders may have failed to control the spiralling debt crisis and as market tensions over the fate of stricken Spain and Greece have left Italy also fending off debt-crisis sharks.

Panic in Italy saw some members of parliament today calling on Monti "to persuade Germany to drop policies which have led to recession" and "act to avoid Italy reducing itself to Greece's state."

The atmosphere between the euro zone's biggest economies has been tetchy, though Paris and Berlin are said to be growing closer to agreement on growth stimulus measures for the debt-stricken euro zone.

But open questions like the pooling sovereign liabilities into eurobonds are still a sore issue and hopes are that Monti can act as a mediator between Merkel and Hollande and help relaunch the Franco-German alliance.

Analysts have called for steps towards fiscal and banking unions that would reduce concerns about the finances of weaker eurozone countries and both Monti and Hollande have expressed interest in a debt-pooling scheme.

But in sometimes harsh terms Merkel said those clamouring for Germany to "pour billions into eurobonds, stability funds, European bank deposit guarantee funds" wanted a quick crisis fix that was unsustainable.

She stressed Europe would only find a way out of the crisis with a strong "political union" with greater fiscal coordination and oversight and insisted "financing growth with new borrowing must stop."

Socialist Hollande's initiative for a French-led push for a growth strategy has been overshadowed by German-inspired calls for a big leap towards further EU integration.

European Commission President Jose Manuel Barroso yesterday said the solution to the debt crisis lay in urgent progress towards ever greater integration, warning the EU was in a "social emergency".

Meanwhile, as crisis gloom spreads, the French finance ministry warned it may have to revise down its growth forecast following bleak Bank of France figures. A second contraction in the third quarter would mean that France joined other EU countries like Britain, Greece, Italy, Portugal and Spain in recession.