This is a translation from Handelsblatt:
Madam Chancellor, you have said in recent weeks over and over again: "If the euro fails, Europe fails." Is Europe’s peace at risk?
Angela Merkel: "We all in Europe are in a very difficult situation. The euro is experiencing its first major crisis in the ten years of its existence. All of the weak spots are now suddenly coming to light: the long-standing unrestrained debt accumulation, the lack of competitiveness in some economies, but also the deficiencies in our European treaties. We must fix these vulnerabilities now now and must be quick about it as well, because the euro is far more than a currency; it stands for the idea of European togetherness."
How big is your concern about Italy? Could Italy be a second Greece? Would Italy’s opportunities for fiscal consolidation increase in an era after Prime Minister Silvio Berlusconi?
Countries decide on their own governments. Italy must strengthen its consolidation efforts – and the Italian government knows that. It has produced a plan that must be implemented now. The Director of the International Monetary Fund, Christine Lagarde, has said Italy is not the problem, it is the lack of confidence. This confidence can be restored once Italy’s implementation plans are made credible. Confidence in the current situation is a rare bird; we need more of it. We know from Ludwig Erhard: Economics is one-half psychology.
Is it enough what Italy has done?
No state can currently claim that it is at the end of its reform path; we will all always have to think about further adaptations. But with Italy, one can say that the country has already done much.
Should the European Central Bank (ECB) fire up the printing presses in the end and buy unlimited amounts of government bonds of the distressed countries?
The ECB has a clear mandate. It is responsible for the stability of the currency; and it has fulfilled this mandate in an excellent manner to date. The ECB has repeatedly made it clear that we can only overcome the crisis, when the euro countries do their homework consistently, by engaging in sustained sound budgetary policies and implementing structural reforms for competitiveness and growth. Already in the summer, the ECB called on Italy to take such a course.
I think the Chancellor’s comments on confidence mirror some of the things Marc Chandler said in his post “A policy response must be forthcoming in short order or the contagion will overwhelm everything else”.
Meanwhile Italian yields are now over 7.2%. They peaked at 7.48% earlier today. Angela Merkel is either a great poker player or she doesn’t grasp what’s about to happen. She may yet prove me wrong!
Source: „Der Euro erlebt seine erste große Krise“ – Handelsblatt