Re: New EC Thread

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ECB Said to Urge Weaker Basel Liquidity Rule on Crisis Concerns


By Jim Brunsden - Aug 27, 2012 11:00 PM GMT+0100

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The European Central Bank is pushing global banking regulators to relax a draft liquidity rule so that lenders can use some asset-backed securities and loans to businesses in a buffer they must hold against a possible credit squeeze, according to three people familiar with the talks.

The ECB, backed by the Bank of France, considers a draft version of the liquidity coverage ratio, or LCR, may hamper efforts to combat the euro-area debt crisis by curtailing lending and making it harder for central banks to implement their monetary policies, said the people, who couldn’t be identified because the discussions at the Basel Committee on Banking Supervision are private. They said the ECB stance is opposed by some other Basel members, including U.S. regulators.





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ECB Said to Urge Weaker Basel Liquidity Rule on Crisis Concerns




Hannelore Foerster/Bloomberg

The ECB is seeking to relax the rule -- designed to force banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze -- by expanding the range of eligible securities, aligning the standard more closely with its own collateral arrangements, the people said.

The ECB is seeking to relax the rule -- designed to force banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze -- by expanding the range of eligible securities, aligning the standard more closely with its own collateral arrangements, the people said. Photographer: Hannelore Foerster/Bloomberg

The LCR was drawn up by the Basel group as part of a package of measures to prevent a repeat of the turmoil that followed the 2008 collapse of Lehman Brothers Holdings Inc. The ECB is seeking to relax the rule -- designed to force banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze -- by expanding the range of eligible securities, aligning the standard more closely with its own collateral arrangements, the people said.

“As central banks have relaxed their rules” during the debt crisis in the euro area, “the LCR has become more and more out of sync with central-bank reality,” said Jesper Berg, senior vice president at Nykredit A/S, Denmark’s biggest mortgage bank.

Collective Shortfall


The 212 largest global banks would have had a collective shortfall of 1.76 trillion euros ($2.2 trillion) as of June 2011 in the assets needed to meet the LCR, according to figures published by the Basel committee. The ratio is scheduled to take effect in 2015.

Lenders have warned that a provisional version of the LCR standard, published in 2010, would force them to cut loans by making them hoard cash and buy up more government bonds, because few assets other than sovereign debt would fully qualify.

The Basel committee said last year that it would review the rule to address any unintended consequences, and is targeting a deal by January 2013, when central bank and regulatory chiefs will meet to discuss the plans. The group will attempt to make headway at a meeting next month.

While a number of regulators favor making some changes to the LCR, the ECB and Bank of France are among those seeking the broadest overhaul, the people said.

Liquidity Buffers


More closely aligning the LCR with the ECB’s collateral rules would expand the range and quality of assets that banks can use to fill up their liquidity buffers, including by giving some scope for asset-backed securities and banks’ own loans to businesses to be used.

The ECB is concerned that without an alignment, banks that borrow funds from the central bank will earmark their best quality assets to meet the LCR rule, according to two of the people.

The Frankfurt-based ECB is also concerned that banks’ need to hoard highly liquid assets may affect the operation of short-term funding markets, they said.

The ECB presented its LCR plan during discussions in the Basel committee’s working groups, including a meeting in New York this month, according to one of the people. Its arguments received only limited support, the person said.

There are concerns among some Basel members, including in the U.S., that far-reaching changes to the LCR may undermine the effectiveness of the measure, which was drawn up in part to make lenders less reliant on central bank support in crises, the people said. Germany’s Bundesbank is also skeptical of the ECB proposals, one of the people said.

Superior Performance


“The ECB accepts as collateral almost anything short of the CEO’s tie,” said Berg. “The ECB’s superior performance in the early phase” after the Lehman collapse “can to a large extent be attributed to its broad collateral framework.”

There is little support in the committee for calls from banks for either gold or equities to count as eligible assets under the LCR, the people said, with neither likely to make it into the final version of the standard. In general, euro-area regulators are among the more sympathetic to the case for including some equities.

Officials at the ECB and the Bank of France in Paris declined to comment.

Sovereign Bonds


Other nations represented on the Basel committee tend to have more narrowly targeted aims for amending the list of eligible assets, the people said. These include a push fromSouth Africa for easing rules on corporate debt that is rated higher than the country’s sovereign bonds.

Regulators in the committee’s working groups have reached a provisional deal to retain a split in the LCR between assets that banks can use to meet their entire requirements and those that can only be used to meet as much as 40 percent, one of the people said. Under that agreement, the rules governing how the distinction works would be adjusted.

The accord on this point will be reviewed by the Basel committee at its meeting next month.

The Basel committee brings together regulators from 27 nations including the U.S., the U.K. and China to coordinate global bank rules.

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Great isn't it.......the Banks who started this crisis and the Euro crisis are now altering the rules to suit themselves.!!!!!

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Before Rajoy-Rompuy Meeting
By Angeline Benoit - Aug 28, 2012 10:01 AM GMT+0100

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Spain’s borrowing costs fell to the lowest in three months at an auction today as Prime MinisterMariano Rajoy hosts European Union President Herman Van Rompuyfor the first in a series of meetings aimed at solving the nation’s funding issues.

The Treasury sold 3.6 billion euros ($4.5 billion) of bills today, more than the 3.5 billion euros sought. The yield for three-month bills fell to 0.946 percent from 2.434 percent at the last sale on July 24. That’s the least paid for three month bills at auction since May 22. The rate on the six-month bills fell to 2.026 percent from 3.691 percent last month.





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Spain Borrowing Costs Dip at Auction Before Rajoy-Rompuy Meeting




Angel Navarrete/Bloomberg

Spain is mulling a request for a second European bailout a month after securing 100 billion euros in loans for its banks as it waits for the ECB to detail its bond-buying plan.

Spain is mulling a request for a second European bailout a month after securing 100 billion euros in loans for its banks as it waits for the ECB to detail its bond-buying plan. Photographer: Angel Navarrete/Bloomberg

Yields on Spanish and Italian bonds have plunged to three-month lows on optimism the European Central Bank and the single currency’s 17 members will agree on a plan to use short-dated sovereign debt purchases to curb governments’ borrowing costs and win them time to implement fiscal changes. Rajoy meets Van Rompuy at 1 p.m. in Madrid.

The yield on Spain’s benchmark 10-year bond yield rose 2 basis points to 6.4 percent at 10:50 a.m. in Madrid, down from a euro-era record of 7.75 percent on July 25. Demand was 3.35 times the amount sold for the three-month securities, compared with 2.94 times in July. The bid-to-cover ratio for the six-month bills was 2.17, down from 3.02.

Full Agenda


Deputy Prime Minister Soraya Saenz de Santamaria said Aug. 24 that Rajoy has a full diplomatic agenda in the coming months as “Spain is working so that mechanisms guaranteeing the euro’s irreversibility are adopted.” Rajoy will meet French presidentFrancois Hollande on Aug. 30, German Chancellor Angela Merkel on Sept. 6, Finnish Premier Jyrki Katainen on Sept. 11 and Italian Prime Minister Mario Monti on Sept. 20-21.

“The aim is to reach a definitive solution to funding problems,” Saenz de Santamaria said. Other agenda items include a meeting with European Investment Bank President Werner Hoyer on Sept. 20, attending the general assembly of the United Nations between Sept. 24 and Sept. 26 and bilateral summit meetings with France and Italy in October, Saenz said.

Spain is mulling a request for a second European bailout a month after securing 100 billion euros in loans for its banks as it waits for the ECB to detail its bond-buying plan. That may not happen before Germany’s Constitutional Court rules Sept. 12 on the legality of Europe’s permanent bailout fund, two central bank officials, who declined to be identified, said last week.

Spain is likely to request more aid in mid-September from Europe’s temporary rescue-fund, the European Financial Stability Facility, given its large bond redemptions in October and the busy calendar for policy makers in September, London-based economist Andrew Benito at Goldman Sachs Group Inc. said last week.

Spain returns to the market to sell bonds on Sept. 6, the day the next ECB meeting is scheduled. The Treasury said Aug. 21 it had covered 72.7 percent of the medium and long-term debt it plans to sell this year.

[Badboy]

I READ A FEW DAYS AGO THAT THE ISLAND OF SPETSES WAS HAVING A FEW PROBLEMS,SOME OF THE RICH WERE FLOUTING SAILING RULES.
SOME OF THE INHABITANTS THOUGHT MAINLAND GREECE WOULD IMPLODE,SO WERE STOCKING UP ON FOOD AND WATER.

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I READ A FEW DAYS AGO THAT THE ISLAND OF SPETSES WAS HAVING A FEW PROBLEMS,SOME OF THE RICH WERE FLOUTING SAILING RULES.
SOME OF THE INHABITANTS THOUGHT MAINLAND GREECE WOULD IMPLODE,SO WERE STOCKING UP ON FOOD AND WATER.

There are many out of work Office staff in Greece who have gone from the Cities to their Parents homes in the Country and are now working on the land, so I don't think Greece will implode. At the Moment the Government is selling assets to raise money and there are enough speculators with plenty of money who will buy for the future.

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France
Measures fail to stem soaring unemployment

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Les Echos, 28 August 2012

A total of 2,987,100 French people were out of work at the end of July, according to new figures, a record level not equalled since January 1999. The number of jobseekers had increased in July by 41,000, the highest level in three years. “So soon after the handover of power [following elections at the beginning of the summer], the new administration is not solely to blame. [...] However, the fact that it still benefits from a presumption of innocence does not in anyway excuse it from the obligation to take urgent action,” warns Les Echosin an editorial.

The daily is also critical of two measures recently announced by the government which it argues will have no positive impact on the labour market –

Far from creating work for the unemployed, the taxation of overtime is a counterproductive measure that will undermine business and have a negative impact on jobs. Contrary to the entrenched theory of work-sharing, overtime worked by some members of the workforce results in the recruitment of others. The other measure, which is as expensive as it is futile, is the decision to create 150,000 subsidised jobs that in most cases will turn out to be temporary contracts with no enduring impact.

Les Echos calls on the head of state to implement structural reforms to make the labour market more flexible, which is the sole means of generating growth. As Le Monde reports, in a television interview, Prime Minister Jean-Marc Ayrault has acknowledged that France’s growth forecasts may have to be reviewed –

The government may have to “adjust down” the growth forecast for 2013, currently set at 1.2 per cent but deemed to be too optimistic by economists. [...] The International Monetary Fund is predicting that the French economy will grow by just 0.8 per cent in 2013, while the average forecast by economists stands at just 0.5 per cent.

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Angela Merkel says details from the troika about Greece are essential before any decision can be made.

Germany backs Greece but there is no clear sign of giving in to an extension of 2 years for Greece to adhere to the austerity measures.

Merkel and Hollande discussed a second Debt writedown and European output is down for the 7th Month.

The ruling coalition Party in Germany says no more money to be loaned to Greece.

Spain has more problems and although Rajoy does not want a bailout Catalonia, a self governing region of Spain is asking for 5 billion Euros....nearly all the money available to ALL the Spanish regions, Valencia is also in trouble. Rajoy says he will await the result of the meetings with Greece.

Analysts are saying either there must be more integration or the outlook will be tough and many investors are now selling their Euros before the end of September.

Draghi cancels the trip to Jackson Hole where a meeting is to take place with Ben Bernanke and various Economists to discuss the worldwide crisis saying he is too busy trying to come up with a plan and weigh up the possibility of cheaper loans. It is a dangerous move because the ECB is primarily responsible for adjusting interest rates and keeping the EURO in balance.

A DeutscheBank spokesman says Germany,s Bundesbank has E750 Billion savings in non European Countries and has not yet signed another sum to the ESM Account which was initially designed to help other Countries, not bail out Euro Countries.

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Could Germany save eurozone by leaving it?



By Clyde Prestowitz and John Prout, Special to CNN
May 30, 2012 -- Updated 2350 GMT (0750 HKT)



Clyde Prestowitz and John Prout say that if Germany returned to the deutsche mark, other eurozone nations would benefit


STORY HIGHLIGHTS

• Writers: To salvage eurozone, Germany, not Greece, should withdraw
  
• They say Germany is very competitive; eurozone countries unable to catch up
  
• They say Germany could improve its currency valuation, stop preventing euro bonds
  
• Writers: Euro bonds could help with euro rescue; pain for Germany would be temporary
  

Editor's note: Clyde Prestowitz writes on globalization for ForeignPolicy.com and is president of the Economic Strategy Institute. John Prout is the former Paris-based treasurer of Credit Commercial de France.

(CNN) -- With Greece probably heading for an exit from the euro, the European and global economies may be facing disaster. However, there is still time for European leaders to reverse this destructive dynamic with one simple, outside-the-box solution: Instead of pushing Greece out of the eurozone, Germany should voluntarily withdraw and reissue its beloved deutsche mark.

The analysis of the problems of the euro and the European Union has long been upside down, focused on the debt and competitive weaknesses of the so-called peripheral countries (Greece, Italy, Spain, Portugal and Ireland) and especially of Greece. But issues of debt and competitiveness existed and were dealt with rather easily long before the euro arrived, through periodic devaluation of the currencies of the less-competitive countries against those of the more competitive countries, and especially against the deutsche mark.

The problem now is not the weaknesses of the periphery, it's the excessive competitive strength of Germany. Not only is the German economy inherently strong as a result of the high productivity of its workforce, its exports have added competitiveness because the euro is undervalued as far as Germany is concerned. Because it is the common currency of the eurozone countries, the value of the euro reflects the average of their combined competitiveness. But Germany's competitiveness is far above the average. So, for Germany, the euro is too weak. This is why Germany has been accumulating chronic trade surpluses on the scale of the Chinese.

As long as the rest of the eurozone countries are locked in the euro with Germany, the only way for them to become more competitive is to become, well, more Germanic, through austerity measures that cut government spending, reduce welfare budgets, cut wages and raise unemployment. This is, of course, what they have been doing for the past two years.

The aim has been to achieve export-led growth. But because Germany is so hypercompetitive and has been unwilling to stimulate its own economy to achieve higher consumption, its eurozone partners have not been able to increase exports to it and have had thus to compete with it in exporting to the likes of China and the United States.

That hasn't been working very well, and now the consequences of grinding austerity are beginning to tear the political and social fabric even of countries like the Netherlands, which until quite recently were enthusiastically echoing the German call for austerity and growth led by trade with countries outside the EU.

But it is not clear that the eurozone can sustain the social and political pain of austerity long enough and on the scale necessary to eventually achieve competitive parity with Germany.

The alternative is for Germany to revert to the deutsche mark. That would immediately result in appreciation of the German currency and competitive devaluation of the euro for the remaining eurozone countries. Germany would tend to buy more while selling less, and vice versa for the rest of the eurozone. The extra consumption that Germany will not deliver via stimulus policies would be automatically delivered by currency revaluation.

The single most essential element of a euro rescue has always been one form or another of a euro bond guaranteed jointly by all eurozone member countries. What the U.S. Treasury bond is to the U.S. economy, the euro bond would be to the EU. The main obstacle has been Germany's insistence that it would not guarantee payments on bonds for the benefit of other European countries.

German reversion to the deutsche mark would remove this obstacle, and with no further German opposition, the remainder of the eurozone could move ahead to establish a true euro bond, along with a unified treasury function to match the unified banking function of the European Central Bank.

Some may object that German backing would still be required for the eurozone and a euro bond to be viable. That is correct, and Germany would indeed remain committed to the eurozone for a number of reasons. It would need the eurozone more than ever to buy its increasingly expensive exports. The Bundesbank (Germany's central bank) would undoubtedly sell deutsche marks against euros to mitigate appreciation, and the resulting accumulation of euros would be invested in the new euro bonds. This in turn might inspire the European Central Bank to initiate quantitative easing programs that would stimulate the entire EU economy.

The cost to Germany of saving Europe will be a hit to exports and perhaps a temporary rise in unemployment, but a return to the deutsche mark would attract a flood of capital to Germany and thereby spur investment while holding interest rates and inflation down.

The real question is whether the cost of slower export growth and increased unemployment is less than that of paying for Greece, then Spain, etc. Somehow, the "unknown" risks of a German exit from the euro appear more manageable, more quantifiable and in some ways more familiar a challenge than endless austerity, social unrest and political polarization.

if(typeof CNN.expElements==='object'){CNN.expElements.init();}

The opinions expressed in this commentary are solely those of Clyde Prestowitz and John Prout.

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Ed Conway

Economics Editor

More from Ed | Follow Ed on Twitter


You have to hand it to the eurocrats of Brussels.

The continent may be in economic turmoil; its biggest and most ambitious project is close to collapse and it is stuck in recession. And yet they still manage to engineer a month of relative calm so that they can enjoy a month-long summer holiday.

August has been exceptionally quiet by recent euro standards – so much so that to the outsider it might almost feel as if the crisis is over. Don’t be fooled.

The euro crisis will return in the coming weeks – and by the end of the year we are likely to learn whether it will claim yet another victim (Spain, likely recipient of a full-scale bailout) and depose one country entirely (Greece, whose days in the single currency still look numbered).

So for those returning from holiday, here’s a reminder of the four big issues to be confronted by the eurocrats in the coming months, in more or less chronological order.

1. ECB: will they, won’t they?

Next Thursday brings the next meeting of the European Central Bank, and the big question is whether it will unveil a full-blown quantitative easing programme to buy up government bonds, potentially even introduce a target ceiling for troubled countries’ debt yields. ECB President Mario Draghi has actually cancelled his appearance at the big summer central banker shindig in Jackson Hole because of the preparatory workload. And given that the German representative on the ECB governing board, Jorg Asmussen, seems more reconciled to such a move, investors are hoping for something impressive. The problem is, any decision might be incumbent on…

2. German constitutional court decision on ESM

Germany’s Parliament, the Bundestag, has already ratified the creation of the new European bailout fund, the European Stability Mechanism, but this needs to be approved by the country’s constitutional court on September 12 (six days after that ECB decision). There are some who complain that the ESM undermines German constitutional sovereignty, since it involves a degree of socialisation of debt across the euro area. Some also suggest that it breaches the fundamental Maastricht rule that there should be no bailouts within the euro. And clearly they have a point. However, the court did approve the creation of the ESM’s predecessor, the EFSF, and gave a provisional thumbs-up to the ESM, so European insiders are confident that the court will decide in favour of the ESM this time around as well.

3. Wither Spain?

It’s fast becoming clear that Spain may need further help from Europe in order to keep itself economically afloat. It has already announced a bailout of its banking system, but this has failed to prevent the investors' exodus from the country. The Bank of Spain announced earlier this week that the country’s banks had seen a 5% plunge in levels of bank deposits in July – taking the total deposit loss over the past year to more than 10%. Meanwhile, the country’s cost of borrowing has been creeping up in the past few weeks (10-year bonds now command interest rates of more than 6.5%), and Catalonia – the region that includes Barcelona – has officially requested a €5bn rescue package from the central government. The suspicion remains that Spain will need a full-scale bailout from the ESM. The only questions are: how much, and what kind of conditions will they have to accede to?

4. Whither Greece?

Yes, Greece all over again. The trio of institutions which provided the country with bailout cash – the Troika – are back in the country inspecting its finances in September. They are due to complete their assessment by early October, but there are likely to be leaks about the country’s economic health before then, and if they are anything like the previous Troika missions, they are unlikely to be encouraging. The likelihood is that the country will fail to meet many – if any – of the bailout targets it has been set. Which will imply it will either have to delay the payback of its bailout cash or ask for more money. That in turn will beg the question of whether institutions such as the European Commission, ECB and International Monetary Fund actually want to keep pouring money into a state which is failing to meet their conditions. In other words, is this finally the moment they will let Greece leave the euro?

In the meantime, it is well worth reading this op-ed by Mario Draghi in the German press today. The gist is that it is possible to have a euro without having to have full-blown political and fiscal union. This may well be true in theory, but it is unlikely to be true in practice.

The manifold bailouts over the past few years (and likely in the coming months) mean that the euro has already necessitated fiscal transfers in order to survive. The Rubicon has already been crossed. It really is make-or-break time for the single currency.

[Badboy]

SPAIN WILL DEFINATELY NEED A BAILOUT BECAUSE CATALONIA NEEDS A 5BILLION EURO BAILOUT,SKIPPED WHAT IT SAID IN GUARDIAN.
UNIMAGABLE AMOUNTS OF MONEY.
THERE CERTAINLY SEEMS TO BE A TOURISM PUSH FOR CATALONIA ON MY TWITTER ACCOUNT.

[Panda]

SPAIN WILL DEFINATELY NEED A BAILOUT BECAUSE CATALONIA NEEDS A 5BILLION EURO BAILOUT,SKIPPED WHAT IT SAID IN GUARDIAN.
UNIMAGABLE AMOUNTS OF MONEY.
THERE CERTAINLY SEEMS TO BE A TOURISM PUSH FOR CATALONIA ON MY TWITTER ACCOUNT.

Hi Badboy , there is so much going on it is hard to put everying in some kind of order. The ESM is to be approved by the Bundesbank and is the mechanism for lending to the likes of Greece and Spain, but there is a limit on the amount of Euros available to lend.

Meanwhile tempers are fraying and Draghi is all for the ECB buying Bonds at reasonable rates of interest. However , Merkel doesn't like the idea because it could breach the EU Treaty. Merkel is off to China soon , a sign that she is in charge and answers to no one. In the meantime, the TROIKA is due to visit Greece to see if the Country is adhering to the austerity plan but Troika does not plan to release their findings until October/Nov and Fitch is considering changes to the European Banks ratings. Got it?????LOL

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Draghi Takes On Bundesbank Orthodoxy in Crisis-Plan Plea


By James G. Neuger - Aug 29, 2012 11:01 PM GMT+0100

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Countering arguments made by the German economics establishment since before the introduction of the euro, European Central Bank President Mario Draghi said it’s in Germany’s interest to consent to extraordinary steps to preserve the currency shared by 17 nations.

Draghi used the pages of German weekly Die Zeit to plead for a more expansive role for the central bank and to say that the crisis-struck currency can be stabilized without sacrificing each country’s independence to a unified European political system.





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European Central Bank President Mario Draghi




Hannelore Foerster/Bloomberg

Mario Draghi, president of the European Central Bank (ECB).

Mario Draghi, president of the European Central Bank (ECB). Photographer: Hannelore Foerster/Bloomberg

In tactical terms, Draghi sought to neutralize protests made by Germany’s top central banker, Jens Weidmann, against ECB proposals to buy Spanish or Italian bonds on the market in order to bring down their borrowing costs and prevent the debt crisis from spreading. Draghi made his appeal in the run-up to the ECB’s Sept. 6 discussion of bond-market interventions for Spainor Italy and a Sept. 12 ruling by Germany’s supreme court on the viability of the planned euro rescue fund.

“A new architecture for the euro area is desirable to create sustained prosperity for all euro-area countries, and especially for Germany,” Draghi wrote. “Yet this new architecture does not require a political union first. Economic integration and political integration can develop in parallel.”

Draghi didn’t mention Weidmann, who last week broke more than a month of silence by telling Spiegel magazine that the bond-buying proposal is a “touchy” matter and the thought of interest-rate targets gives him “stomach pains.” Weidmann, head of the Bundesbank, summed up the idea as “addictive like a drug.”

Jackson Hole


Two days after the Bundesbanker’s comments were released, Draghi canceled a trip to the annual Jackson Hole economic symposium in the U.S. this week to shepherd the ECB’s negotiations over the bond purchases.

Since Draghi first floated the idea on July 26, Spanish and Italian bonds have rallied. Spain’s extra 10-year borrowing cost over German levels declined to as low as 465 basis points Aug. 21 from 611 basis points. Italy’s extra borrowing cost has dropped to 410 basis points the same day from 518 basis points.

Draghi, an Italian applauded by Germany’s best-selling Bild tabloid for his disciplined economic philosophy when he took over the ECB last year, said Germany as Europe’s linchpin economy would be a leading beneficiary of any unconventional measures to stabilize the currency union.

ECB Tasks


He struck out against a German shibboleth -- echoed by Weidmann in the Spiegel interview -- that the central bank only exists to fight inflation.

In fact, euro treaties label price stability the ECB’s“primary” task, and otherwise require it to support the European Union’s general economic policies. The Bundesbank and its allies also point to provisions prohibiting the ECB from directly financing governments.

“Our mandate sometimes requires us to go beyond standard monetary-policy tools,” Draghi wrote. “This is our responsibility as the central bank of the euro area as a whole.”

The Weidmann-Draghi debate in the German media served as a prelude to the crisis-management showdowns that loom as Europe’s leaders return from vacation. In addition to the ECB’s bond-buying clash and the German court ruling, the agenda includes a review of Greece’s deficit-reduction progress, details of Spain’s bank-aid program, emergency loans for Cyprus and the unveiling of European bank-supervision plans.

Draghi took the unusual step of publicly cornering Weidmann on Aug. 2, telling a press conference that the Bundesbank chief was alone in expressing “reservations” about a renewed bond-purchase program that would tie countries such as Spain or Italyto tough conditions.

‘Political Union’


While the battle is over the ECB’s next move in the more than 2 1/2-year-old debt crisis, it also played out on a higher level, with Draghi challenging a strand of German thinking that holds that only a fully fledged “political union” will right the euro’s wrongs.

That all-or-nothing approach has long appealed to the Bundesbank. In October 1990, more than a year before the summit in Maastricht, Netherlands, that set the stage for the euro, the German central bank said only a “comprehensive political union” could make a common currency work.

After being named Bundesbank president last year, Weidmann said the euro’s salvation probably required a “giant leap” to a federal political system instead of a “middle road” of tinkering with a flawed setup.

United States


Draghi parried those arguments by saying that Europeans aren’t faced with the choice of the extremes of reverting to national currencies or building a United States of Europe. Europe already has many of the trappings of political union, with a directly elected European Parliament and a range of decisions made by representatives of national governments, he wrote.

“Those who want to go back to the past misunderstand the significance of the euro,” Draghi wrote. “Those who claim only a full federation can be sustainable set the bar too high.”

Euro countries can undertake a “gradual and structured effort” to strengthen central oversight of national budgets and the banking system, and build a more robust common market, Draghi said.

[Panda]

Germany unemployment rose for the fifth month.

Angela Merkel is currently in China , had a meeting with Wen, the Chines Leader who commented he is more confident

after meeting Merkel. I remember not so long ago that there was talk of asking China for financial help when the IMF could not lend any more money. At the time other Euro Countries were suggesting China would want something in return,such as freer trade in the EU........could this be the reason for her visit???

Rajoy is mulling over a bailout which he does not want , but 3 regional areas, Catalonia, Murcia and Valencia are in dire straits and the only way money would be available is for Spain to take on the Sovereign debt and comply with more austerity measures. Rajoy is meeting with Hollande today.

Draghi says the Eurozone needs new Architecture and the role of the ECB extended to enable Bonds to be purchased at reasonable rates. The bundesbank argues that the role of the ECB is to monitor the Euros' exchange rate and adjust interest rates accordingly. Anything else would break the Treaty rules.

There is a theory that the lower the Euro falls , the more benefit for Germany whoare the driving force in Exports.Germany in turn would have more money to help the others out......what happens to the other 16 Countries who see their cost of living increase?





P.S. I am just wondering how come Germany and Merkel can dictate the rules and regulations? Was Merkel appointed

Head of the Euro Countries? If so, what happens if , in the election next year her party does not win.?

[Panda]

30 August 2012 Last updated at 07:57

China to buy 50 Airbus planes for $3.5bn
China and Germany signed trade deals in aviation energy, environment, health and maritime co-operation
Continue reading the main story

Aerospace and Defence


China has signed a deal to buy 50 planes worth $3.5bn (£2.2bn) from Europe's Airbus.

The agreement is part of a slew of trade deals signed by German Chancellor Angela Merkel at the start of a two-day visit to China.

An agreement on Airbus plane assembly in China was also signed, according to the Xinhua news agency.

Chinese Premier Wen Jiabao said on Thursday his country would continue to invest in the EU.

Emissions row

This is the first significant deal in China for Airbus, whose parent company is EADS, since a dispute between the country and the European Union over the Emissions Trading Scheme (ETS).

Effective from 1 January this year, the ETS charges airlines for the carbon they emit.

China and other countries say the system is not fair, as it charges airlines for the full journey, not just over European airspace.

Following this in March, EADS chief executive Louis Gallois said Airbus was facing "retaliation measures" by China.

According to him, China had blocked firms from buying planes made by Airbus. Beijing did not comment on the allegation.

Merkel visit

Ms Merkel is in China for the second time this year, as she tries to improve relations and drum up business for European companies.

She is being accompanied by several ministers, as well as top German executives.

Bilateral trade between Germany and China totalled about $180bn dollars last year. That is nearly double what it was five years ago.

On Thursday, the two countries signed 10 further agreements, in the sectors of communication, energy, health and maritime co-operation, among others, Xinhua said.



What did I tell you!!!! You can bet China has been granted EU Approval for more trade deals . If the Airbus is to be

assembled in China, what about Britain who assembles and transports the wings to France.? What about France who

assembles the rest. ? I suspect at the recent meeting with Hollande Merkel told him what was happening . It will be

interesting to see what the EU Members make of this.

[Badboy]

THE SPANISH REGIONS HAVE DEBTS OF AT LEAST 120 BILLION EUROS,THAT SOME SERIOUS DOUGH THAT COULD BANKRUPT THE NATION
THERE IS A AIRPORT IN VALENCIA(CASTILLON) WHERE THE JOKE IS THERE WILL BE A LANDING ON MARS BEFORE ANYTHING LANDS AT THE AIRPORT.

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Our true European community



28 August 2012Frankfurter Allgemeine Zeitung Frankfurt

Beppe Giacobbe

Fiscal union in order to complete the single currency is the only way out of the crisis, says German writer Martin Walser. But it is important to remember that the true Europe has always been a community of learning, which respects the various cultures that make it up.

Martin Walser

Every night we are diverted by a battery of points of view on the crisis. For me, this produces the following effect: I listen to each expert to see if he still wants Europe or if, on the contrary, he wants us to return to an array of national currencies, without the euro.

Only those that hope that the European Union will also be a monetary union get my vote. The euro is here. It is more than a currency. Today, for a country to return to the age of national currencies, to become, once again, the plaything of every speculator, is a nightmare scenario.

Years ago, Swiss conservative Christoph Blocher said of Switzerland, that a monetary union could not function without budgetary union. Something we have all, in the meantime, come to experience, at the financial level. Fortunately, we dared to create a single currency without budgetary union. It must be created today, in retrospect. If this union is possible on a practical level, it will not be the result of a vision, but of legislation built step-by-step. And here is a grandiloquent expert asking if the single currency must force Europeans to "smooth their cultural differences"!

A common currency coupled with a coordinated accounting system will not level cultural and mental differences any more than do dominant foreign languages. Unlike any other continent, Europe has behind it a long tradition of cross-border learning and cross-border comprehension.

If there is one item on which the economists need not worry, it is cultural differences. These are so ancient, so unshakable, that the economy can be regulated in peace. Making states responsible for the common management of the economy, such is the goal. Today, everybody is calling for the regulation of financial markets. With a European Central Bank playing the role of a central authority capable of adapting to each situation. That is sufficient.

Economists and solidarity


We have behind us several centuries during which common ideas developed. I am not impressed by people trying to convince me that we cannot permit this union for this reason or for that. Then, there is also pure economic theory. When one sees that some find fault with the Financial Equalisation System [between poor and rich German states], one realises that economists understand nothing about the meaning of the word solidarity.

I am no more impressed by people who demand from us "systemic" reforms in order to share the debt cropping up here and there.

We, the spectators, can only approve these pontificating experts or reject what they offer. I confess that my confidence rests – it is no great surprise – with [Finance Minister] Wolfgang Schäuble. But, because it is Europe, I promise to examine the current and past positions of people of letters, of which I am one.

Literature has always been European


A 1799 letter by Friedrich Hölderlin reads: "But the best of the Germans continue to think that everything would be for the best if only this world were neatly symmetrical. Oh Greece, with your geniality and your piety, where to have you come?" If I quote this passage, it is not because Greece is today manhandled within the eurozone, but because it shows how much a poet from Nürtingen [southern Germany], aged 24 at the time, felt close to other European countries, to the point that this foreign place was his homeland; to the point that it was part of his conscience; of his identity. In other words, literature has always been European. Europe is our literary homeland.

Nietzsche's Greek soul


As for Nietzsche, he ends The Birth of Tragedy From the Spirit of Music, a wild and precocious work in which he described the never-ending struggle between followers of Apollo and those of Dionysus, – a book on Greece, no more no less – in the following way: "How much these people must have suffered in order to be able to become so beautiful!"

I recall that this Greek benediction is meant to show that poets have always been European. And of all German-language writers, Nietzsche, is in my opinion, the most European to have ever existed.

France, England, Italy, Spain and so many others are, nonetheless, no less important in the eyes of the German poets.

Wherever you look, it is when it is European that German literature is the most lively. It is German only after having been unfaithful to Germany. In the emotional vein, who has not read in Madame Bovary an enticement to have emotions? Strindberg showed us to what point suffering can be violent. Proust taught us that talking of childhood can be spellbinding. And so on and so forth.

A few highlights


In this struggle that occupies us all, referring to the "right" Europe, I am always impressed by experts who react on a case-by-case basis, but always in favour of Europe and not against it. It is when I realise that a proposal is dictated by political manipulations that I am the least receptive. To my eyes, the spoilsports must not impose their views.

Yet, one notes that, among the experts hostile to the German government's current roadmap, there are few who do not predict a catastrophe if their vision is not followed.

That is why I've allowed myself these few highlights on the advantages of a literature turned towards Europe. It is in Greece, Provence, England and elsewhere that the German language learned to move, to walk, to dance, to prance.

Europe is a community of learning


Why would the people in question today not be successful, with our support, in initiating a recovery that would take us all out of the crisis?

We must guard against that, under cover of practical considerations, cold feet become the rule. All backtracking would send Europe to the dustbin of history for many years. For a while, it would no longer be "feasible". Yet, it must remain "feasible"!

The "right" Europe is neither an elite club nor a federation governed by a European super-authority. The "right" Europe is a community of learning based on self-determination and on work done voluntarily.

That is what Europe has to offer the world.

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Hollande’s Business Policies Faulted by French Corporate Leaders


By Francois de Beaupuy, Tara Patel and Mark Deen - Aug 30, 2012 11:01 PM GMT+0100


French corporate leaders criticized Socialist President Francois Hollande’s government for policies they say hurt companies already battered by a slowing economy and decades of business-unfriendly practices.

“Each week, steps voted in parliament are slowing public and private actions,” Guillaume Poitrinal, chief executive officer of Unibail-Rodamco SE (UL), Europe’s largest publicly traded property owner, said yesterday at a conference organized by the French employers’ group Medef on the outskirts of Paris. “We have a frenzy of regulations. In an accelerating world, we need more flexibility for companies, more flexibility on labor, and we need quicker public action.”





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France's President Francois Hollande




Andrew Harrer/Bloomberg

Francois Hollande, France's president.

Francois Hollande, France's president. Photographer: Andrew Harrer/Bloomberg

Entrepreneurs and executives say businesses are being squeezed by higher corporate taxes and more stringent policies as Hollande’s government struggles to keep its pledge to cut thebudget deficit. The move comes as the government faces an economy that hasn’t grown in three quarters, joblessness at a 13-year high and a record trade deficit.

“We’re suffering from this backdrop which is becoming more and more constraining,” said Air Liquide SA (AI) CEO Benoit Potier.“We need a stabilization of the regulatory framework, we need to invest in education and training, broadly speaking we need a pro-business climate to grow.”

Hollande, who won office this year on campaign promises of social justice and countering Europe’s sovereign debt crisis with growth, is being forced to address corporate complaints that labor laws are too restrictive, wage costs and social charges too high and corporate taxes too steep.

‘Tax Champions’


“French companies are the most taxed in Europe; we’re the champions of corporate taxes,” Laurence Parisot, the head of Medef, said in a Bloomberg Television interview. “This is a major issue for us. Also, social laws are so complex, our companies are not able to adapt to changes in the world.”

Hollande has proposed increasing taxes for big companies to 35 percent and cuts for small and medium-sized businesses; a 75 percent levy on incomes above 1 million euros a year and special taxes on banks and oil companies. The French parliament put into effect this month a tax on financial transactions.

The president has also pledged to repeal 29 billion euros of tax breaks over the next five years. He wants to increase the total tax level -- payroll and profits -- to 46.9 percent in 2017 from 45.1 percent in 2012.

At a conference last month in Aix-en-Provence, Louis Gallois, former chief executive officer of European Aeronautic, Defence & Space Co. (EAD) and the government’s point person on competitiveness advocated a cut in corporate taxes and charges.

Labor Costs


“We need to create a competitiveness shock,” he said, calling for cuts in taxes and social charges of as much as 50 billion euros ($62 billion). “It has to be quite massive.”

France has the euro area’s second-highest unit cost of labor after Belgium, according to an April 2012 Eurostat report. Its cost of 34.20 euros an hour compares with Germany’s 30.10 euros, Italy’s 26.80 euros and 20.60 euros for Spain.

The expense has made companies reluctant to hire, while the economic slowdown has left almost 3 million people jobless.

Companies also say one of the biggest obstacles to hiring is the “Code du Travail,” a 3,200-page labor rulebook that decrees everything from job classifications to leave for training to the ability to fire.

“It’s not the public sector that’s going to create jobs in the years to come, it is companies,” Stephane Richard, CEO ofFrance Telecom SA (FTE), said at the conference yesterday. “Making the environment conducive to business is key. Employment is the most urgent of the urgent subjects.”

Funding Woes


In the absence of such policies, even France’s coveted welfare system is in danger, said Unibail-Rodamco’s Poitrinal.

“The welfare system won’t survive without greater flexibility and quicker public action.”

The government’s policies need to make investing in companies more appealing, said Jean-Louis Chaussade, CEO of Suez Environnement (SEV), Europe’s second-biggest waste company.

“We must give companies funds to allow them to develop,”he said. “Small shareholders are being hammered. Dividends are hammered, and we’re going to push savings into risk-free passbooks, which isn’t the way to go. To create jobs in France, we need French companies, hence we need capital.”

On the industrial front, companies question the government’s plans to cut the share of nuclear energy in the country’s electricity production. Nuclear energy provides more than three quarters of French power production and helps keep the country’s electricity prices among the lowest in Europe.

Government Reassurance


“Nuclear energy is clearly less expensive for us,” Cie. de Saint Gobain (SGO) Chief Executive Officer Pierre-Andre de Chalendar said in November.

Energy Minister Delphine Batho defended the government’s plan at the conference yesterday, saying, “we will lower the proportion of nuclear in electricity production. We won’t get out of nuclear because we will need it for a long time but at the same time we need to diversify our sources. We can keep nuclear jobs and add jobs in solar and wind.”

Finance Minister Pierre Moscovici and Labor Minister Michel Sapin also sought to reassure businesses.

“Competitiveness isn’t a dirty word,” Moscovici said as he pledged to set up a framework favorable to investment and innovation. “Government services must also work in a quicker and simpler way.”

He said the 2013 budget to be presented in the week of Sept. 24 will have measures for companies. He also said social spending can’t be covered entirely by payroll taxes, promising to address the issue next year.

France needs rules that “allow companies to adapt,” Sapin said in a Bloomberg TV interview, adding that he’s discussing adaptability with companies. It’s about the “ability of companies to adapt to a changing world, changing technology and economic shocks.”

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Spain Said to Speed EU Bank Bailout on Collateral Limits


By Esteban Duarte and Rebecca Christie - Aug 31, 2012 12:00 AM GMT+0100


Spain is considering pumping its own money into Bankia group to re-capitalize the country’s biggest nationalized lender rather than use the emergency portion of a 100 billion-euro ($125 billion) bailout from the European Union, two people with direct knowledge of the matter said.

This would allow Spain to put off forcing Bankia group’s junior debt holders to bear part of the rescue cost, said the people, who asked not to be identified because the negotiations are private. European officials backed burden sharing in the talks because it would limit the need for public money, the people said.





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Spain Said to Weigh Recapitalizing Bankia Without Money From EU




Angel Navarrete/Bloomberg

Bankia SA , the listed unit of the Madrid-based group, fell 63 percent this year to 1.34 euros, valuing the lender at 2.68 billion euros, data compiled by Bloomberg show.

Bankia SA , the listed unit of the Madrid-based group, fell 63 percent this year to 1.34 euros, valuing the lender at 2.68 billion euros, data compiled by Bloomberg show. Photographer: Angel Navarrete/Bloomberg

The EU agreed to set aside 30 billion euros of contingency cash as part of the July 24 rescue of Spain’s lenders as they hemorrhage deposits, though the government said it hasn’t yet officially requested the funds. Prime Minister Mariano Rajoymeanwhile said a decision on Spain’s sovereign rescue is being delayed until it’s clear what aid the country will receive underEuropean Central Bank plans to help debt-ridden nations.

An alternative to Spain using its own money to bolster Bankia group is to wait for the first scheduled payments under the financial-sector bailout due in November, borrowing more from the ECB in the meantime, according to the people. Spain’s cash would only cover some of the 19 billion euros of capital the lender needs, so European money will still have to be used, one of the people said.

No Request


An official at Spain’s Economy Ministry in Madrid denied any delay to the banking-sector bailout as a result of talks with the European Commission, the EU’s executive arm. The initial payment hasn’t been requested because it wasn’t considered necessary, said the official, who asked not to be named in line with government policy.

An official at the commission in Brussels, and Madrid-based officials at Bankia and the Bank of Spain, declined to comment.

So-called burden-sharing for holders of Bankia group junior debt is controversial because a large portion of the notes, known as preferred shares, are owned by retail customers. The securities will still have to take losses at some stage because it’s required by the terms of Spain’s agreement with the EU.

Bankia group was formed in 2010 from the merger of Spain’s troubled savings banks. Bankia SA (BKIA), the listed unit of the Madrid-based group, fell 63 percent this year to 1.34 euros as of yesterday, valuing the lender at 2.68 billion euros, data compiled by Bloomberg show.

Concern over the fourth largest euro-region economy’s ability to fund the rescue of its banks and regional governments sent Spain’s 10-year bond yield surging to a record 7.751 percent on July

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Rajoy, still very reluctant to accept a bail-out is considering and wants to know what the conditions would be , he is

apparently considering helping Bankia from Government money.

There is growing antipathy between Draghi and Merkel. He wants the ECB to have control over all EU Banks, Merkel is thought to be against this . The Large Banks are considered quite capable of monitoring themselves , it is the smaller banks who have been profligate with customers money. **

** I don't accept this, it is the Larger Banks who have been responsible for this crisis!!!!

The French Finance Minister says all banks should be monitored but Merkel says only those that need to will be monitored.

Chinese President Wen during discussion with Merkel said China would be willing to help the EU financially by buying European Bonds but ONLY WHEN EURO FINANCES ARE IN ORDER. I just wonder if these Trade Agreements signed have sold the EU down the river , does she have the Authority to sign for the whole of Europe?

There is growing discontent among EU Leaders , more confirming they will not bail out Greece some that the current austerity measures are creating more unemployment and hardship and since the World is in recession and consumer prices rising the situation is worse.

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Austrian Finance Minister says it will not back any bailout to Greece because of the Country's bad housekeeping.

If the ECB take control of the Euro Banks , ignoring Merkel's claim that only large banks should be monitored, there are

6,000 Banks .!!! It is estimates that 80% of the small banks need regulation.

Ex Italian Prime Minister Prodi has every confidence in Draghi and says he knows what he is doing.

Unemployment in the Euro area is the highest yet and inflation is making matters worse.

Finland will back a bail-out to save the Euro although not long ago they said they would not contribute to the ESM Fund.

Lufthansa Cabin Crew are on strike saying they havn't had a rise in 3 years.

Spain is considering lending from Government Money to help Bankia . Moodys says if Spain accepts a bail-put Bonds

would be costlier and its rating could drop to Junk Bond.

Merkel is playing bad Cop as Ireland pursues relief on debt.

Weidman, head of Bundesbank says he will not support the proposed ECB taking control of monitoring all banks and has threatened to resign if this is passed by the EU.

When the proposed Banking Licence is granted for the ESM Fund to lend to EU Countries there is not enough in the fund to deal with all the Countries who need help and Germany has already contributed several million and it remains to be seen which of the other Euro Countries are willing to donate.

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Hong Kong (CNN) -- The real crisis confronting the eurozone is regaining market confidence, not the euro, German Foreign Minister Guido Westerwelle said Friday.

"Some people wonder if we're overcoming the euro crisis the right way," said Westerwelle, speaking at the Asia Society in Hong Kong. "We do not have a euro crisis, we have a debt crisis which has morphed into a crisis of confidence. The euro is stable and is the number two reserve currency in the world."

To bolster market confidence in the eurozone, Westerwelle -- who is part of the cabinet-level entourage traveling with German Chancellor Angela Merkel for her two-day summit in China -- said it was essential that Greece and other debt-laden economies in Europe maintain paths toward reform.

Athens and Berlin in spat over funds

Greek cuts to be deeper than trailed

Last week, Greek Prime Minister Antonis Samaras met with German Chancellor Angela Merkel in Berlin to ask for more "breathing space" for Greece to implement austerity reforms. The troika -- consisting of the European Union, the European Central Bank and the International Monetary Fund -- is due to report on Greece's progress next month.







German Chancellor in China







Spain's olive oil crisis






Spanish mayor likened to Robin Hood
"I don't want to be part of this Greece bashing, because it's a real challenge for them. I feel for the people on the streets of Greece, because the people weren't responsible for what their leaders missed in the past decade.

"We feel solidarity but we have to insist they fulfill what they promised," Westerwelle continued. "We can't allow them to weaken the reform agenda. It would have a very negative effect in trying to restore confidence to Greece and the European Union."

He also questioned how the Spanish government could be persuaded to stay on path if any agreement with Greece was weakened.

Catalonia heightens Spanish debt fears

Westerwelle pointed to Germany's own debt woes in the wake of West Germany's reunification with East Germany during the 1990s. "It was only 10 years ago that Germany was the sick man of Europe. Reforms may be painful, but they will pay off and that's what we Germans have experienced first hand," he said.

Even as he advocates strict adherence to austerity measures, Westerwelle has been a strong voice against politicians who suggest Greece should soon exit the eurozone. "The bullying against individual euro countries to achieve political gains must stop," Westerwelle said after Alexander Dobrindt, the executive secretary of the Christian Social Union of Bavaria, suggested a Greek departure was imminent, the German daily Rheinische Post reported on Monday.

Earlier this month, Westerwelle warned on the "dangerous tone" arguments on European Union were taking. "We must take care not to talk Europe down," he said in a statement, released after Italian Prime Minister Mario Monti told a German paper that eurozone tensions "bear the traits of a psychological dissolution of Europe."

As developing economies like China and India create more regional centers of financial power, a strong EU is "life insurance" for Germany's future, especially as the eurozone represents only about 9% of the world population, Westerwelle continued. "Europe and European unity is not only our destiny, but our desire," he said.

"There can be no good future for Germany without a good future for a united Europe," Westerwelle said.

Read more: Merkel faces EU clash over China

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Merkel faces EU clash over China





By Kathrin Hille and Joshua Chaffin, FT.com
August 31, 2012 -- Updated 0217 GMT (1017 HKT)



German Chancellor Angela Merkel and Chinese President Hu Jintao in Beijing on August 30, 2012.


STORY HIGHLIGHTS

• Merkel: An EU trade case on Chinese solar panels should be resolved through negotiation
  
• Comment reflects Beijing's growing clout with its European trading partners
  
• Merkel is reluctant to support a trade action instigated by a German company
  
• Puts her on a collision course the EU trade commissioner who has taken a harder line
  

(Financial Times) -- A contentious EU trade case targeting Chinese solar panel companies should be resolved through negotiations, Germany's chancellor said on Tuesday, reflecting Beijing's growing clout with its European trading partners.

Angela Merkel's reluctance to support a trade action instigated by a German company was communicated at a meeting in Beijing with Wen Jiabao, the Chinese premier, and appeared to put her on a collision course with Karel De Gucht, the EU trade commissioner who has taken a harder line against Beijing for what he contends are unfair trading practices.

Mr De Gucht is expected to open a formal investigation next week to determine whether Chinese manufacturers have dumped their products on the EU market. That review could lead to punitive tariffs -- an outcome the chancellor told her Chinese hosts she was keen to avoid.

"We should try to solve the problems in the solar sector to avoid an anti-dumping case," Ms Merkel said. "We have time for that, and it would be better if we could find a solution through talks."

Mr Wen welcomed Ms Merkel's call for talks, saying it could serve as a model for the solution of trade conflicts worldwide. A spokesman for Mr De Gucht said: "We've seen Chancellor Merkel's comments and we take note of them."

Privately, EU officials and diplomats said it was unlikely that talks to resolve the dispute could be concluded before a 45-day review period ends next Friday. They also noted that Mr De Gucht was required to handle cases in accordance with EU trade law -- not diplomacy.

The solar panel case, filed by Bonn-based Solar World, is particularly sensitive, given governments' strategic interest in the renewable energy industry as a source of jobs and competitiveness.

The EU has struggled to forge a common trade policy among its 27 member states, particularly when each is jockeying for its own lucrative commercial ties with Beijing.

Ms Merkel led a 150-strong delegation to Beijing including dozens of executives and nine members of her cabinet, highlighting what German diplomats described as the "special relationship" between Beijing and Berlin.The two countries signed 18 agreements on Thursday, including a $3.5bn deal under which ICBC Leasing will acquire 50 Airbus aircraft.

Managing trade relations has been further complicated by EU attempts to persuade Beijing to deploy some of its massive foreign exchange reserves to ease the eurozone debt crisis.

Ms Merkel assured the Chinese premier of eurozone countries' "absolute political will" to stabilise their currency. Mr Wen urged the EU to balance fiscal reform with economic stimulus.

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Lisa Holland

Foreign Affairs Correspondent sky news

More from Lisa | Follow Lisa on Twitter


Angela Merkel is being given the red carpet treatment in China.

The German Chancellor is here for her second visit of the year - and it is clear the Chinese see Germany as the power of Europe.

Beijing is like a revolving door when it comes to world leaders dropping in for a political visit.

This week, we saw Egypt's flags draped around Tiananmen Square to greet the new Egyptian general.

Next week we'll see the Prime Minister of Singapore and America's Secretary of State Hillary Clinton.

But when Gordon Brown, Britain's former prime minister, came here a few years ago he was left to sightsee around Beijing's landmark Forbidden City - home to its imperial leaders - alone.

The Chinese hierarchy did not want,or need, a photo opportunity to showcase their relationship.

Things could not be more different on this visit by Angela Merkel.

She has been personally shown around the Forbidden City by China's Premier Wen Jiabao and he also escorted her to the coastal city of Tianjin on a visit to an Airbus factory.

Mrs Merkel has just signed a raft of new deals including a £2bn deal to buy 50 new planes from Europe's Airbus.

She has also agreed 10 further deals in communications, energy, health and maritime co-operation.
A family look at cars outside a BMW showroom in Beijing
Germany is by far China's biggest trading partner in the EU - accounting for a 24.7% share of overall trade. The UK accounts for just 8.8%.

Trade between Germany and China totalled about £114bn last year and Mrs Merkel predicted it would rise to nearly £180bn over five years.

While British Chancellor George Osborne said Britain was committed to reaching £63bn in bilateral trade by 2015, Germany has had a business footprint in China for decades - first getting VW into the country in the 1980s.

You only have to spend a few minutes on the streets of the capital with its roads jammed with cars to see the German financial influence. There are BMWs, VWs, Mercedes and Audis everywhere.

The car companies have tapped into the emerging and highly lucrative car market making cars for the Chinese inside China.

Just a couple of decades ago, a car was a rarity on the streets and it was the bicycles which were king of the road.

Beijing's car growth runs at more than 1,000 new cars a day on the streets - and it has been like that for more than a decade.

Britain might envy Germany's ability to exert itself in the Chinese markets but it is not as simple as Germany being talented in cutting deals.

The Germans have the technology that China wants to import, and for China that's an essential two-way business street if it's to keep its title as workshop of the world.

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Debate
A federal Europe may be a pipe dream



31 August 2012La Repubblica Rome

Vlahovic

At the whim of their leaders, more and more countries, beginning with Germany, are foregoing their projects for a federal Europe. But this is making room for some unique alternatives, such as a Club of Mediterranean countries or a Latino Union, notes the doyen of the Italian press.

Eugenio Scalfari

The game being played in Europe is very complex. Around the table, there are only four players: Italian President Mario Monti, European Central Bank chief Mario Draghi, the Bundesbank, the German Central Bank and German Chancellor Angela Merkel.

They each have their own strategy and alliances can shift as the game progresses. If the outcome is positive, the Italian and Spanish spread [the difference between their sovereign bond yields and those of Germany] will shrink, their sovereign debt will cost less to service and, mostly, it will result in a commitment that Monti can transmit to the government that will issue from the next elections, expected between November and April.

This commitment will have a very high value in the eyes of the markets and will re-enforce the positions of Mario Draghi and Angela Merkel against the Bundesbank hawks and the political forces that support them.

On September 6, the ECB governing council is expected to make a decision on the bailout plan. Monti, for his part, should announce his decisions in the following days. By the end of September, this problem should be definitively resolved.

Towards a federal Europe


There is another, even greater, problem – that of the political and institutional context of this "unconventional" intervention by the ECB. It is the question of eventually moving away from a confederation of governments towards a federal Europe.

In other words, this consists of a "relinquishing of sovereignty" by national governments in favour of the federal bodies of the European Union. These include the already existing bodies that, in any case, will have to be reformed, as well as new ones that will undoubtedly have to be created in addition to the structures of the EU.

A few weeks ago it seemed that Angela Merkel was betting on the birth of a federal Union. French President François Hollande's position was not yet clear, but it was hoped that France would finally also recognise the need for this solution in a now globalised world.

If we bring it up again today, it is because there has been a new development: the idea of a federal Europe has vanished from the scene – the chancellor no longer talks about it – the question of the handover of sovereignty is now limited to the budget pact and the decision of the German Constitutional Court on the European Stability Mechanism (ESM) is imminent.

Even the feasibility of a banking union and of unified monitoring, not under the stewardship of the national banks, but entrusted to the ECB, is in doubt.

Getting back on track


In short, there is a clear withdrawal from a project that was, certainly, very difficult to implement in a continent divided by a wide variety of languages, ethnic groups and traditions but absolutely necessary if Europe is not to fall into total political insignificance. How can this back-pedaling be explained? And what is to be done to put this project back on track?

Angela Merkel has probably understood two things that she had neglected or under-evaluated a few months ago. The first is that a large majority of her people do not approve of a domineering Germany foisting policies on a Europe in which all member states, including Germany, would have to cede significant portions of sovereignty.

The Germans prefer to make profitable deals and to maintain their industrial and financial superiority over Europe but refuse to exercise a political domination that would imply considerable responsibilities and a partial renunciation of national independence.

The second regards the resistance of many other countries to the federal idea, beginning with France, the northern and the eastern countries – with those not in the eurozone, such as the United Kingdom and Poland – leading the pack.

The project, therefore, seems stuffed at the back of a drawer, apart from some relinquishing of sovereignty as concerns the European budget, some fiscal policies, defending the single currency, which, lacking the political context, will never have the strength required of a reserve currency.

Thinking the unthinkable


Abandoning this project, however, opens other avenues of negotiation and fosters initiatives that would otherwise be unthinkable. It allows, for example, those countries interested in a federal Europe to federate among themselves. The threat, bandied about in the past by Germany – "we are moving forward, too bad for the others" – when the talk concerned a two-speed currency union, could now, on the question of giving up political sovereignty, be used against it.

Should Italy, Spain, Portugal, Ireland, Austria, or just the first three of these, create or rather relaunch, a Mediterranean Club with its own rules and common institutions that would maintain a presence in the European Union and in the eurozone, not as individual states but as a club, the repercussions would far-reaching, even very far-reaching.

I pursue my example. What if the club countries established consultative and friendly economic and political relations with the other Mediterranean countries – Algeria, Morocco, Libya, Egypt, Israel, Turkey – relations that already exist but that would be embodied not by the countries that compose the club, but by the latter as a single partner?

What if, in addition, similar accords were signed with the entire Latino area of South and Central America, principally Argentina, Brazil, Uruguay and Mexico?

New horizons


Argentina and Brazil have already indicated their willingness to study and to establish relations of this type. Could not a Mediterranean club take the initiative in this direction?

If interests and imagination suggest new horizons, it is also possible for a federal Europe to get back on track. Dreams are sometimes a necessity in order to confront harsh reality.

I would like to mention one last point regarding a federal Europe.

Should it, sooner or later, come into being, it would then be necessary to implement some important institutional reforms:

1. The European Parliament must be elected on a European-wide and not on a national basis.

2. Referendums concerning European issues should be submitted to the vote of the European people and not to each of its member states.

3. The international structure of a federal union must be presidential, modelled on the United States, in which the president is elected and appoints a federal government; in which the parliament monitors government action including the appointments of high-level federal officials as well as laws regarding the budget, expenditure and receipts; in which there is a Constitutional Court to uphold the Federal Constitution.

When the state is the size of a continent, and what's more, in a globalised world, the role of democracy is to ensure rapid decisions, the visibility of the leader representing the continent, and citizen participation. The foundations of this edifice are based on the separation of powers.

These are clearly far away goals, but the people must be aware of them and must discuss them so as to prepare for their eventual attainment.

[fuzeta]

Article by Martin Walser top of this page. Whatever is this bloke on? Whatever it is I will give it a miss

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