Austerity Blow for Merkel

http://www.reuters.com/article/2012/...84C0BD20120514
Austerity blow for Merkel in German state election

By Stephen Brown
DUESSELDORF, Germany | Sun May 13, 2012 10:13pm EDT
(Reuters) - Chancellor Angela Merkel's conservatives suffered a crushing defeat on Sunday in an election in Germany's most populous state, a result which could embolden the left opposition to step up attacks on her European austerity policies.

The election in North Rhine-Westphalia (NRW), a western German state with a bigger population than the Netherlands and an economy the size of Turkey, was held 18 months before a national vote in which Merkel will be fighting for a third term.

While she remains popular at home because of the strength of the economy and her steady handling of the euro zone debt crisis, the sheer scale of the defeat in NRW leaves her vulnerable at a time when a backlash against her insistence on fiscal discipline is building across Europe.

According to first projections, the centre-left Social Democrats (SPD) won 38.9 percent of the vote and will have enough to form a stable majority with the Greens.

Merkel's Christian Democrats (CDU) saw their support plunge to just 26.3 percent, down from nearly 35 percent in 2010, and the worst result in the state since World War Two.

"This is not a good evening for Merkel," said Gero Neugebauer, a political scientist at Berlin's Free University. "The SPD is strengthened by this election, which will stir things up in Berlin."

Soros on Austerity in Europe

http://www.marketwatch.com/story/sor...me_latest_news

Jan. 25, 2012, 9:51 a.m. EST
Soros: Austerity fomenting Europe tensions
Germans have been traumatized by inflation, billionaire says
By Polya Lesova, MarketWatch



DAVOS, Switzerland (MarketWatch) — Billionaire investor George Soros warned on Wednesday that the austerity Germany wants to impose on other euro-zone nations “will push Europe into a deflationary debt spiral.”

Germans “have been traumatized by inflation and they don’t understand the threat that deflation can cause,” Soros told reporters at the annual meeting of the World Economic Forum in Davos. “There’s a shift in German thinking recognizing this isn’t working, but we’re quite far yet from abandoning this emphasis on inflation as the only threat to stability.”


The euro zone’s sovereign-debt crisis is a major topic this year, with German Chancellor Angela Merkel due to give the opening address this evening and European Central Bank President Mario Draghi set to speak later in the week.

Investors are closely watching talks between debt-laden Greece and private-sector creditors in which the two sides are trying to agree on a writedown of Greek debt that will be voluntary.

“The big issue is how does the euro cope with the danger of a Greek default,” Soros said. “Because that is something that is looming — it may or may not be avoided.”

Soros, an outspoken billionaire and philanthropist, gave a speech on the euro crisis and then took questions from reporters on a wide range of subjects, including China, the U.S., Russia, the Swiss franc and oil prices.

Soros, who has written a new book on financial turmoil in Europe and the U.S., said that measures taken by the European Central Bank in December have relieved the liquidity problems of European banks, but “they did not cure the financing disadvantage from which the highly indebted member states suffer.”

High risk premiums on Italian and Spanish bonds threaten the capital adequacy of banks and leave weaker euro-area nations “relegated to the status of third-world countries that became highly indebted in a foreign currency,” he said.


Instead of the International Monetary Fund, “Germany is acting as the taskmaster imposing tough fiscal discipline,” Soros said. “This will generate both economic and political tensions that could destroy the European Union.”

The billionaire investor said that fiscal discipline alone isn’t enough to solve the crisis and that the EU will have to provide stimulus to get out of the deflationary spiral. “This will require euro bonds in one guise or another,” he said.


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http://www.nytimes.com/2012/05/17/wo...l-says.html?hp



Softening, Merkel Says She Is Open to Stimulus for Greece

By NICHOLAS KULISH and MELISSA EDDY
Published: May 16, 2012


BERLIN — Chancellor Angela Merkel of Germany said Wednesday that she was ready to discuss stimulus programs to get the Greek economy growing again and that she was committed to keeping Greece in the euro zone, signaling a softer approach toward the struggling country.

The fierce rhetorical salvos out of Germany in the past week gave way to conciliatory gestures by Ms. Merkel, who throughout the crisis has shown a propensity for managing through brinkmanship. “I have the will, the determination to keep Greece in the euro zone,” she said in an interview on CNBC on Wednesday, in what appeared to be an attempt to relax an increasingly tense situation.

If Greek officials are looking for “stimulus to be pursued for growth in the euro zone, which we could pursue in the interest of Greece, we’re open for this,” Ms. Merkel said. “Germany is open for this.”

Europe was shaken anew this week by the chaos in Greece, where a bank run threatened to hasten the country’s exit from the euro and jeopardize the Continent’s financial stability. While the impact of a country’s leaving the euro is hard to predict, economists fear the crisis could spread to much larger countries like Spain and Italy if financial markets bid up borrowing rates to unsustainable levels.

Ms. Merkel is preparing to head to Camp David in Maryland for the Group of 8 meeting beginning on Friday, and she is likely to be pressed there by the leaders of other industrial nations, in particular by President Obama, to find a way to quell the turmoil. On Tuesday night she met for the first time with France’s newly inaugurated president, François Hollande, who campaigned on the need for more growth-promoting policies.

In recent days Ms. Merkel has signaled a growing openness to additional growth measures as long as they do not interfere with the fiscal compact to cut deficits in the euro zone in the long run. “On the one hand we have the pillar of sound fiscal policy, and the second pillar will then be the growth component,” Ms. Merkel said in the CNBC interview.