Monday, January 2, 2012
'Euro will be stable' claim is ridiculed
Wolfgang Schauble said he was confident that the currency union will survive and the political measures will underpin the shattered eurozone economies. "We will be far enough along in the next 12 months that we will have banished the dangers of contagion and stabilised the eurozone," he told newspaper Handelsblatt.
As the euro plunged against the yen to its lowest level for 10 years, Mr Schauble was reported as saying he could rule out the eurozone breaking up: "According to everything that I know at the moment, yes."
Terry Smith, chief executive of Tullett Prebon, said the Mr Schauble was "talking his own book" in hoping the current agreements will save the euro. "The German finance minister has not said anything substantive which changes the situation," he told The Daily Telegraph. "If the eurozone crisis could be solved by confident pronouncements, it would already be saved. I would be shocked if Greece does not leave the eurozone in 2012 and this does not lead the markets to test the resolve to defend the positions of Portugal, Spain, Italy and, ultimately, France."
Jurgen Michels, an economist at Citigroup, said that Mr Schauble was being "optimistic" as "we expect a severe recession in the euro area and sharp contractions in the periphery countries including Italy and Spain – 2012 will be a very difficult year for the euro area."
Nicolas Spiro, a sovereign risk consultant, said it was more likely that the crisis would escalate because leaders have "failed to meaningfully address the issue that concerns investors the most: the solvency of governments".
Raoul Ruparel, from the think-tank Open Europe, said Mr Schauble was trying to "talk up" the rescue processes ahead of the next round of meetings in January. "It's the usual rhetoric over substance," he said.
The euro, whose notes and coins were launched 10 years ago today, fell below 100 yen for the first time in 10 years. Analysts warned that the currency, which has been unexpectedly robust throughout the crisis, might be buckling under the pressure. On the bondmarkets, the yield on Italian 10-year bonds finished the year just above the 7pc danger level.
In Spain, the scale of the crisis was underscored by Mariano Rajoy who forecast a bigger-than-expected budget deficit for 2011. After his second cabinet meeting, the newly elected prime minister said he expected the budget deficit to be around 8pc of GDP, up from the previous government's target of 6pc. The gap is twice the shortfall forecast for Italy and more than four times that of Germany. Mr Rajoy said he would cut government spending by €8.9bn in the first quarter of 2012 and impose higher taxes on income, saving and higher-value properties.
Hungary passed laws for its central bank in a move that experts warned could jeopardise its chances of securing international bail-out funds if it needs them. Officials from the International Monetary Fund (IMF) have warned about the rules which will undermine the independence of the central bank. Hungarian prime minister Viktor Orban the country would not bow to the "European fashion that the central bank must be in a sacred state of independence".