Europe's Options: Few, and Shrinking-wsj 10/22 : EU 국가부채 위기 해결책의 독일과 프랑스의 정치,경제적 이해관계 상충

[처용]

By MARCUS WALKER and CHARLES FORELLE

Agence France-Presse/Getty Images

German Chancellor Angela Merkel, left, and French President Nicolas Sarkozy remain far apart on key issues, say people familiar with the talks.

BERLIN—The world's hopes that Europe will resolve its debt crisis in a bold stroke are running into a stubborn reality: Solutions that work on paper are often unattainable in a euro zone of 17 sovereign countries.

Euro-zone finance ministers met in Brussels Friday, ahead of a European Union summit on Sunday, to grapple with the disagreements that are holding up the promised "comprehensive package" to tame the crisis. Those include rifts between the most important players—Germany, France and the European Central Bank—over how to beef up the euro zone's bailout fund and how deeply to restructure Greece's crushing debts.

Even if leaders do enough to avoid a financial meltdown, resolving the deeper causes of the debt crisis—which include economic disparities that Europe hasn't figured out how to redress within the euro framework—is likely to take years, analysts and officials warn.

"Europe is staring at a lost decade," says Simon Tilford, chief economist at the Center for European Reform, a London think tank. Years of economic stagnation with persistent fears of sovereign and banking-sector defaults "will have a considerable impact on the broader international economy," he says.

Behind current policy divisions lie profound political and institutional constraints that limit what Europe can do to stop a collapse of confidence in its single-currency zone that is threatening to undermine fragile economic growth worldwide.

Markets and policy makers agree that a grand plan is needed. But a number of factors are restricting the euro zone to small steps: the limits of solidarity between the 17 nation-states that make up the euro zone, the cautious culture of the bloc's central bank, the reluctance of national governments to overhaul their economies except under duress, and a lack of financial elbow room even in Europe's core economies such as France.

Despite high expectations that a solution will result from Sunday's summit, European leaders are already dampening hopes and saying that a second summit on Wednesday will be required, WSJ Brussel bureau chief Steven Fidler reports on Markets Hub. Photo: Reuters.

"We are not really showing a properly functioning leadership," Luxembourg's Prime Minister Jean-Claude Juncker said on arriving in Brussels for Friday's negotiations. Europe's divisions over its crisis response are sending out "disastrous" signals to markets, he said.

Renewed hopes that euro-zone leaders would make progress this weekend lifted financial markets on Friday. On Thursday, German Chancellor Angela Merkel and French President Nicolas Sarkozy spooked markets by admitting they won't be able to agree on anti-crisis measures by Sunday and will need a second summit, planned for next Wednesday.

People familiar with the negotiations said Germany and France remain so far apart on key issues that Ms. Merkel couldn't get a green light to sign a deal from her increasingly assertive parliamentarians.

France is pressing for euro-zone governments to turn their joint bailout fund into a bank that can borrow money from the ECB, greatly amplifying its firepower, a step that the ECB and Germany reject.

Germany is insisting that Greece's private-sector bondholders take a big hit to reduce Greece's debt to a more sustainable level, a proposal that France and the ECB are resisting for fear that it could accelerate bond investors' flight from Southern Europe.

On Friday, a report by international inspectors said Greece's funding needs can only be met if bondholders accept writedowns of 60%, or if euro-zone governments lend Athens billions of euros more than planned. The report could strengthen Germany's hand in the dispute with France.

Lawmakers from Ms. Merkel's center-right coalition are insisting she consult them in detail before agreeing to any EU compromise that could cost German taxpayers yet more money. "The governments in Europe are going to have to get used to this," Volker Kauder, conservative leader in Germany's parliament, told Der Spiegel, a German weekly.

After warnings from Mr. Kauder and other lawmakers, Ms. Merkel was forced to rearrange Europe's timetable for its next decisions, in a series of emergency phone calls on Thursday.

Lawmakers who answer to national electorates in Germany, Finland, Slovakia and other countries are putting the brakes on euro-zone leaders' bailout plans.

The logic of deeper economic integration in a currency union is clashing with ingrained national identities that continue to be the foundation of Europe's democracies.

Since Greece's first bailout in the spring of 2010, ordinary Germans and their elected representatives have grumbled that Germans, after years of cutting welfare entitlements, are having to rescue Greeks who had long lived beyond their means.

Pan-European solidarity is an especially hard sell in parts of the euro zone that are less wealthy than Germany.

"It's not fair that a poorer country like Slovakia should have to pay for a richer one, like Greece," says Nikola Brucknerova, a Slovak student who works as a clerk in corner grocery store in Bratislava.

"It was a mistake for us to join the euro zone," Ms. Brucknerova says, expressing envy for the neighboring Czechs, who joined the EU but kept their national currency.

On most of the Continent, belief in the overall benefits of European integration remains strong, opinion polls show. The European project has coincided with decades of relative peace and prosperity after a war-torn history.

So far, national parliaments have signed off on all of the requested bailouts of cash-strapped euro-zone members—for fear of a bigger financial crash and far-graver political fissures in Europe.

But parliaments are increasingly setting limits to the checks leaders such as Ms. Merkel can write, as popular doubts grow over whether the cost of propping up Greece and other stragglers is worth it.

The bloc's bailout fund is thus stuck with a limited lending capacity of ?440 billion, much of which is already committed.

The U.S., which is watching the euro crisis unfold with growing anxiety, has been pushing Europe to amplify the fund by letting it borrow from the ECB, an idea that France and some other euro members support.

The ECB, as controller of the currency, has unlimited financial firepower, which many economists say it should use, playing the role of lender of last resort to euro-zone governments and banks.

But lending to governments—either directly or via the bailout fund—is unpalatable for the ECB, which inherited a cautious approach to central banking from the German Bundesbank.

Intervening more actively in government debt markets, like other major central banks do, would jeopardize the ECB's political acceptance in Germany, where voters and politicians fear that bond-buying leads quickly to money-printing and high inflation.

"Central banks should not be called upon to finance states," German Finance Minister Wolfgang Schauble said in Brussels on Friday, underlying the orthodoxy which France would like Germany to relax.

With the ECB tethered, the euro zone is confronting growing problems with limited financial resources.

The inter-governmental bailout fund created last year, the European Financial Stability Facility, is being called upon to finance governments that can't tap bond markets, prop up the bond prices of further countries, offer some nations precautionary loans, and help recapitalize banks—all with only ?440 billion at its disposal.

But making the fund bigger risks undermining its credibility. Its ability to raise funds cheaply rests on guarantees from the euro zone's triple-A-rated states, mainly Germany and France.But French politicians fear the country could lose its credit rating if it increases its contribution to the bailout fund.

Rating agency Moody's Investors Service warned early this week that France's credit rating could come under pressure, thanks in part to "the possible need to provide additional support to other European sovereigns or to its own banking system."

"Europe has to lay out a vision of how it will put itself back on track and move towards greater political and fiscal union," says Harvard economics professor Kenneth Rogoff. "Only that will give investors the confidence that the euro zone will stay together and that they don't have to pull their money out," he says.

—Laura Stevens and Gordon Fairclough contributed to this article.