Global IssuesEUROPE: Berlin Urged to End Austerity Measures
Bolstered by Germany’s strong economy, Berlin has become the unofficial capital of the battered European monetary union. However the German government’s proposals to solve the sovereign debt crisis, by imposing severe austerity programmes to reduce state deficits and rejecting the distribution of Eurobonds, are coming up against increasing opposition across most of the 17 countries that comprise the Eurozone.
On Jan 9, French president Nicolas Sarkozy was in Berlin to meet German chancellor Angela Merkel and discuss fresh new solutions to the European sovereign debt crisis.
On Jan 11, Italian Prime Minister Mario Monti, in office since November, visited the German capital for the very same purpose but made no secret of his wish to modify the austerity programme, which successive governments have hurled at the crisis with little to no success.
In an interview with the German daily newspaper Die Welt, Monti said that his government has imposed 'severe burdens' upon the Italian citizenry by following Berlin’s austerity model, but so far 'the European Union has made no concession towards Italy, by way of lower interest rates' for the country’s state bonds.
'If Italian citizens do not see (the immediate) fruits of their austerity efforts, there will be protests against the EU, against Germany, and against the European Central Bank,' Monti warned. 'There are already signs of these protests.'
Although almost all 17 members of the Eurozone currently suffer from sovereign debt, financial markets sanction each of them differently by imposing different interest rates for new state debt bonds.
For instance, Germany, which has a sovereign debt of some 2.1 trillion Euros, pays extremely low interest rates for new debt bonds. Earlier in January, the interest rates for new German debt bonds were negative, meaning that investors were willing to pay Germany for taking out fresh loans. In contrast, Italy, the third largest economy in the Eurozone, has a total debt of less than two trillion Euros but is forced to pay interest rates of well over six percent.
These high interest rates increase the state’s financial burden, especially considering that Italy has to refinance debts worth at least 170 billion Euros this year. The burden is worsened by the fact that Italy is facing a terrible recession, caused by the global economic downturn and deepened by the austerity measures implemented by the government in 2011. In its newest Economic Outlook , the Organisation for Economic Cooperation and Development (OECD) warned last November that Italian 'output is set to decline well into 2012, and thereafter the recovery is projected to be weak.'
Besides Italy, the OECD estimates that Greece and Portugal, both member states of the EU and each battling severe recessions, record high unemployment and growing poverty rates, have particularly bleak forecasts for the coming year. The OECD also predicts that the French and Irish economies are set to stagnate in 2012.
The report further warned that growth in the whole Eurozone 'has stalled as confidence has weakened and financial conditions have deteriorated as a result of the sovereign debt crisis… Fiscal consolidation and adjustment of private sector balance sheets will continue to restrain demand growth. Unemployment will begin to rise again and there will be a wide margin of spare capacity.' In other words: Short- and medium-term economic policies should aim at stimulating the economy, rather than throttling it with austerity measures. According to Monti, 'The Eurozone needs a common policy to promote economic growth.'
© Inter Press Service (2012) — All Rights ReservedOriginal source: Inter Press Service