Sat, Dec 31, 2011 - Page 10 News List

Eurozone will stabilize next year, Germany says

AP, BERLIN and FRANKFURT, GERMANY

Germany’s finance minister said he was confident that Europe’s politicians would manage to stabilize the eurozone next year and keep the continent’s common currency together.

German Minister of Finance Wolfgang Schaeuble said in an interview with business daily Handelsblatt published yesterday that major problems that have built up over a long time remain to be tackled in some countries.

However, he added: “I think we will be far enough along in the next 12 months that we will have banished the dangers of contagion and stabilized the eurozone.”

Asked whether he could rule out the 17-nation eurozone breaking up, Schaeuble was quoted as saying: “According to everything that I know at the moment, yes.”

He said that Europe’s politicians “are doing everything to prevent the common currency falling apart.”

“Of course, the European Union cannot force anyone to stay in if they don’t want to belong any more,” he added. “But no such development can seen at the moment.”

Germany, Europe’s biggest economy, is a key player in the long-running battle to stem the eurozone debt crisis. It has backed the strategy of getting governments to embark on often-savage austerity measures to reduce deficits.

However, it has opposed measures such as issuing jointly backed eurobonds and said that there was no quick fix to the crisis, expressing great skepticism about the wisdom of a major government bond-buying drive by the European Central Bank that is advocated by many as a way of forcing down struggling countries’ borrowing costs.

“The talk of bazookas and the like only leads to us not tackling sustainably the causes of the crisis,” Schaeuble was quoted as saying.

The eurozone will quickly face new challenges next year, with both Italy and Spain needing to borrow large amounts of money early in the new year. Both countries face high borrowing costs.

If the auctions go well and borrowing costs ease, the crisis will ease, lending support for the EU strategy of getting governments to embark on often-savage austerity measures to reduce deficits, along with massive support for the -banking system from the European Central Bank.

High rates, on the other hand, would feed fears of a government debt default that could cripple banks, sink the economy and, in the extreme case, destroy the 17-member currency union.

Schaeuble said that Europe’s refinancing needs early next year were “not trivial.”

“But the more we win back confidence on the markets, the more investors ... will invest in the eurozone, and not just in German bonds,” he said. “There is no shortage of money worldwide.”

“In case of doubt, a somewhat higher interest rate has to be paid for some government bonds,” Schaeuble said. “That is not damaging per se and also can encourage the understanding that we have to tackle the actual causes of the crisis: overly high debts and a lack of competitiveness.”

The task is for the major players — eurozone governments, the EU’s executive Commission and the European Central Bank — to convince financial markets that troubled governments can pay their heavy debts and therefore deserve to borrow at affordable interest costs.

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