For months, European media have focused on "Merkozy"—German Chancellor Angela Merkel's partnership with French President Nicolas Sarkozy. As Europe's leaders prepare for a decisive summit on Friday, however, hopes for a breakthrough in the euro-zone debt crisis may hinge on a different pairing: that of the German chancellor and European Central Bank President Mario Draghi. With pressure from financial markets rising, the German leader and Italian central banker appear to be the only Europeans with the political clout and purse to save the euro. What is less clear is how far each is willing to go and how long they will wait. Mr. Draghi and many of his colleagues on the ECB governing council are reluctant to take radical steps that could cause a political backlash against the central bank in Germany, Europe's largest economy and the ECB's biggest financial backer. "Draghi knows that one country in Europe has a 28% share in the ECB," said Michael Fuchs, a senior lawmaker in Ms. Merkel's conservative Christian Democratic Union. "It would be smart" if Mr. Draghi continued to heed the sensibilities of his biggest shareholder, Mr. Fuchs added. Yet most economists say the crisis has become so bad that only the ECB, with its ability to create euros, can prop up bond markets and make sure countries such as Italy and Spain can refinance their debts in the market. Ms. Merkel and other German government officials usually refrain from commenting publicly on ECB decisions, in keeping with Germany's belief that central banks should be independent. In negotiations behind closed doors, however, the German government is showing more openness to a bigger ECB firefighting role in the euro crisis. Economists say the ECB will likely cut its key interest rate as soon as Thursday—or if not, then almost certainly in January. Many also expect Mr. Draghi to announce on Thursday that the ECB will lend to banks for longer maturities and with looser collateral requirements. Mr. Draghi's words on whether the ECB is prepared to give the IMF a loan to strengthen the IMF's role in Europe will also be watched closely. But Mr. Draghi isn't expected to change his stance just on ECB bond-buying, the policy that economists say really matters. Last week, he hinted that the ECB stands ready to help governments more, provided governments help themselves first by agreeing to a stricter budgetary regime. "Other elements might follow, but the sequencing matters," Mr. Draghi said. 
Access Investments-Building Awareness - European Union-ROMANIA
Thursday, December 8, 2011
The Italian connection - BCE
For months, European media have focused on "Merkozy"—German Chancellor Angela Merkel's partnership with French President Nicolas Sarkozy. As Europe's leaders prepare for a decisive summit on Friday, however, hopes for a breakthrough in the euro-zone debt crisis may hinge on a different pairing: that of the German chancellor and European Central Bank President Mario Draghi. With pressure from financial markets rising, the German leader and Italian central banker appear to be the only Europeans with the political clout and purse to save the euro. What is less clear is how far each is willing to go and how long they will wait. Mr. Draghi and many of his colleagues on the ECB governing council are reluctant to take radical steps that could cause a political backlash against the central bank in Germany, Europe's largest economy and the ECB's biggest financial backer. "Draghi knows that one country in Europe has a 28% share in the ECB," said Michael Fuchs, a senior lawmaker in Ms. Merkel's conservative Christian Democratic Union. "It would be smart" if Mr. Draghi continued to heed the sensibilities of his biggest shareholder, Mr. Fuchs added. Yet most economists say the crisis has become so bad that only the ECB, with its ability to create euros, can prop up bond markets and make sure countries such as Italy and Spain can refinance their debts in the market. Ms. Merkel and other German government officials usually refrain from commenting publicly on ECB decisions, in keeping with Germany's belief that central banks should be independent. In negotiations behind closed doors, however, the German government is showing more openness to a bigger ECB firefighting role in the euro crisis. Economists say the ECB will likely cut its key interest rate as soon as Thursday—or if not, then almost certainly in January. Many also expect Mr. Draghi to announce on Thursday that the ECB will lend to banks for longer maturities and with looser collateral requirements. Mr. Draghi's words on whether the ECB is prepared to give the IMF a loan to strengthen the IMF's role in Europe will also be watched closely. But Mr. Draghi isn't expected to change his stance just on ECB bond-buying, the policy that economists say really matters. Last week, he hinted that the ECB stands ready to help governments more, provided governments help themselves first by agreeing to a stricter budgetary regime. "Other elements might follow, but the sequencing matters," Mr. Draghi said. 
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A high-stakes challenge by Germany and France at today’s European Union summit will either unify the continent, or spark a backlash among already skeptical debt holders if it fails.
On the eve of the two-day leader summit in Brussels, German Chancellor Angela Merkel and French President Nicolas Sarkozy insisted on vigorous fiscal discipline among the 27 EU countries, to the point that they would have to accept national budget oversight to prevent another round of lavish sovereign overspending.
Either way, the EFSF looks doomed.
Its creditworthiness was already diminishing in investors’ eyes: the yield on its 10-year bonds has risen by a percentage point since late September, to 3.63 per cent on Tuesday. That is the same as the yield at which the bonds were sold in June, so the move is not yet that dramatic.
But investors in China and Japan, which flocked to the EFSF’s four bond issues to date, are unlikely to buy anything less than triple-A rated paper. The euro zone is already running out of financing options. It needs to keep those investors sweet.
NO confidence these days, history is speaking and so are current times. The track record of EU countries, in particular Italy, Greece, Spain is one of borrowing to support a large public sector. Recently Greece defaulted, or should I say the EU asked (demanded) lenders take a 50% haircut on loans to Greece. Within nation, who because of large debt and high interest rates( confidence in repayment), public protest over increase taxes/less tax evasion and of course cutting back on ridiculous public sector spending has been met with violent protests. Then you have the leaders of the EU (Germany/France), trying to cook up scheme, leverage and using other peoples money(China, Brics, IMF) to create bailout funds. Funds, which will continue to enable the other EU nations to live large, borrow and not pay back their loans. Other schemes have been hatch, including fiscal union in the EU (Germany wins the war, and runs the show), all this after 10 other failed attempts. They will do in weeks, what the maastricht took 8 years to accomplish. Freaking give me a break! I was not borne yesterday, in the past and currently there is no evidence the EU can or will be repaired
The euro crisis is more than a euro crisis; it's crisis of value.
This means that it is on a world scale.
Whether Europe can muddle through a little longer, is not the key point.
Capital devaluation on a huge scale seems unavoidable.
It's just WHEN will it happen.
I state up front that I don't have any in-depth knowledge of macroeconomics or any experience with how credit ratings agencies work. These are sincere questions: wasn't Standard&Poor's one of the credit rating agencies who rated asset-backed commercial paper as a "triple-A" investment? Didn't they also rate the financial institutions who made billions off those assets as "triple-A"? Did they not have a conflict of interest in providing ratings of organizations whom they also relied on for business? Weren't their dubious ratings subsequently seen as one of the catalysts for the the Meltdown of 2008? If any or all of these are true, why is it they have such power to move financial markets and dictate policy? It seems really strange that we lend such weight to an enterprise that has previously shown itself to be either monumentally incompetent or hopelessly corrupt.
Sorry, not completely on the Euro topic, but the article just got me wondering ...
Eurobonds would devastate the German government finances as they would see a large increase in their own borrowing costs. They aren't going to go for it. The only way a fiscal union happens is if Germany/Netherlands/Finland have a veto over the budgets of any other "have not" member.
Looking forwards to the fireworks. The European Union was a dumb idea to start with.
State control currencies only serve the State ... which is why everyone within the corridors of power hang-on to these currencies.
When the people awake, the lie will be no more.
Only gold is money. It keeps its value and it undermines the States' ability to grow forever.
I love gold.
Those who are against it, are either part of the system (i.e. working in their own interests) or don't fully understand gold's strength.
Ya, right. This is the ratings agency that was giving the Lehman Brothers junk "securities" a AAA rating right up to the 2008 crash. So exactly how do ratings agencies make a buck? Well, someone pays them to do an analysis and issue a rating. In this case they are warning/threatening to downgrade the rating of borrowers, thereby increasing their interest costs. Now who would benefit from that? Maybe lenders?
The German Finance Minister had the right response the other day when he said in so many words "Who cares what a fleabag ratings agency has to say. Take a hike".
German Finance Minister Wolfgang Schäuble called on the EU to seize on the S&P warning as an incentive to regain the confidence of financial markets. After all, S&P said it would closely monitor the outcome of the EU summit.
But even if the 27 governments agree to amendments in record time, further dangers will loom when nations set about ratifying the changes. The Irish could trigger the next euro crisis if they held a referendum with a negative outcome. Dublin has said there will have to be a referendum, regardless of how limited the amendments turn out to be.
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