German finance minister Wolfgang Schauble said it would be a folly to boost the EU's bail-out machinery (EFSF) beyond its €440bn lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank. "I don't understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense," he said. Mr Schauble told Washington to mind its own businesss after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is "scaring the world". "It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government," he said. The comments risk irritating the White House. US Treasury Secretary Tim Geithner has been a key driver of plans to give the EFSF enough firepower to shore up Italy and Spain, fearing a drift into "cascading default, bank runs and catastrophic risk" without dramatic action. Markets across the world ignored the mixed signals about the true scope of EU rescue measures, convinced that EU leaders have a "grand plan" up their sleeves and will unveil the details after the Bundestag has voted on Thursday on the earlier July deal to revamp the fund. France's CAC-40 surged by 5.7pc, led by a 17pc rise for Societe Generale. Germany's Dax was up 5.3pc. The FTSE 100 jumped 4pc in London, the biggest one-day rise this year. Oil jumped almost $4 in New York to $88 a barrel. In Berlin, Chancellor Angela Merkel was fighting for her political life as the rump of lawmakers from her coalition vowed to reject the EFSF package, though the latest tally suggests she may squeeze by with her own majority. Angry dissidents suspect that secret plans are being withheld until after the vote. 
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Wednesday, September 28, 2011
German finance minister Wolfgang Schauble said it would be a folly to boost the EU's bail-out machinery (EFSF) beyond its €440bn lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank. "I don't understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense," he said. Mr Schauble told Washington to mind its own businesss after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is "scaring the world". "It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government," he said. The comments risk irritating the White House. US Treasury Secretary Tim Geithner has been a key driver of plans to give the EFSF enough firepower to shore up Italy and Spain, fearing a drift into "cascading default, bank runs and catastrophic risk" without dramatic action. Markets across the world ignored the mixed signals about the true scope of EU rescue measures, convinced that EU leaders have a "grand plan" up their sleeves and will unveil the details after the Bundestag has voted on Thursday on the earlier July deal to revamp the fund. France's CAC-40 surged by 5.7pc, led by a 17pc rise for Societe Generale. Germany's Dax was up 5.3pc. The FTSE 100 jumped 4pc in London, the biggest one-day rise this year. Oil jumped almost $4 in New York to $88 a barrel. In Berlin, Chancellor Angela Merkel was fighting for her political life as the rump of lawmakers from her coalition vowed to reject the EFSF package, though the latest tally suggests she may squeeze by with her own majority. Angry dissidents suspect that secret plans are being withheld until after the vote. 
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Greece has a trump card in rescue talks with the IMF-EU "Troika". If it opts for a "hard default", it could set off a chain reaction. Lorenzo Bini-Smaghi, an ECB board member, said those arguing that Europe's banks could withstand a Greek default are misguided. "Similar views were held before Lehman. Those who say this have no idea how contagion works," he said.
Analysts say the Troika will have to approve the next €8bn tranche of aid for Athens in October whether or not Greece has complied fully with the terms. It cannot risk a showdown before Europe's banks have beefed up their capital base, or before the EFSF is fully equipped to defend the rest of the system.
Like a forced marriage, Europe and Greece must kiss and pretend.
Germany pledged support to Greece today in a desperate effort to shore up the eurozone, but fell short of revealing the package of measures that the markets hope will be enough to save the single currency.
The chancellor, Angela Merkel, pledged solidarity at a meeting with her Greek counterpart, George Papandreou, just two days ahead of a crucial vote in the German parliament on the expansion of the bailout fund, which is regarded as the first step to increasing the firepower of the eurozone countries enough to buy up bonds and buttress troubled banks.
However, conscious of animosity among the majority of German voters towards helping the less prudent nation, Merkel attached strings to her support, calling on Greece to "do its homework" in implementing painful cuts and reforms.
The pair who avoided any talk of a Greek default, orderly or otherwise, or of any multitrillion-euro rescue plan, ahead of a dinner in Berlin on Tuesday night. Even so, stock markets rebounded strongly on hopes that the deal that emerged over the weekend at the International Monetary Fund meeting in Washington – to "leverage" the spending power of the €440bn (£382bn) bailout fund to €2tn, in conjunction with lending from the European Central Bank – was being worked on behind the scenes.
German negotiators are at loggerheads with their French counterparts over pledges to quadruple the eurozone's €440bn (£382bn) bailout fund ahead of a crucial vote in the Bundestag on Thursday that could decide the fate of the currency zone.
Attempts by Berlin to write off up to 50% of Greek debts as part of a wider rescue package faced stiff opposition from France, which is concerned many of its banks would need to find extra funds to cope with the resulting losses.
Wrangling over the need to expand the bailout came to the fore at a meeting of the International Monetary Fund in Washington last weekend. EU officials told the IMF plans were under way to increase the bailout fund to about €2tn and write of half of Greece's sovereign debts.
But that pledge was reported to be at risk with France said to be in conflict with Germany, Finland and Slovenia.
Fears that the major EU countries will fail to agree an expanded package of measures to cope with a default by Greece, and possibly Italy and Spain, has undermined confidence in the eurozone and led to a collapse in bank shares. French banks have suffered huge falls since the summer when concerns first emerged that they would collapse under the weight of unpaid debts if Greece defaulted.
In the last two days shares have rallied on hopes the IMF talks would lead to concrete agreement.
German chancellor Angela Merkel pledged solidarity at a meeting with her Greek counterpart, George Papandreou, but refused to reveal details of the talks and the package of measures that the markets hope will save the single currency.
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