'EU Leaders Are Staring at Markets Like Rabbits at a Snake'

Spiegel
October 11, 2011

French President Nicolas Sarkozy and German Chancellor Angela Merkel have made sweeping promises in recent months. The results, however, have been meager. Now the two are demanding a swift recapitalization of European banks. German commentators aren't buying it.

The euro crisis is escalating again, with growing concern that a looming Greek insolvency could trigger a new banking crisis. Furthermore, apparent divisions between France and Germany on the recapitalization of banks have unsettled investors and there are widespread concerns that Slovakia will block the expansion of the euro bailout fund in a parliamentary vote due later on Tuesday.

Meanwhile, Greek newspapers are reporting that inspectors from the "troika," made up of the European Union, the European Central Bank and the International Monetary Fund, will issue a tepid report on Greece's progress on reforms. The report's findings are crucial for Greece to receive the next tranche of international aid from the rescue package assembled in the spring of 2010.

German media commentators on Tuesday heap criticism on the crisis management of European leaders, saying policy responses have been dictated throughout by pressure from the financial markets. Whenever those market pressures ease, leaders seem to take a breather rather than using periods of calm to come up with a comprehensive strategy to solve the crisis once and for all.

The regular meetings between German Chancellor Angela Merkel and Nicolas Sarkozy are a case in point, commentators say. The two leaders get together whenever financial markets start panicking, and make grand pledges to try to calm the situation. But then little concrete progress is made. Their announcement in mid-August of plans to set up an economic government for the euro zone, to enshrine debt brakes in all euro zone member states and introduce a financial transaction tax seem forgotten. Instead, because financial markets now fear European banks -- and French banks in particular -- will get into trouble as a result of a possible Greek debt cut, they talked at their last meeting on Sunday in Berlin about a recapitalization of banks, feigned agreement and said a comprehensive plan would be in place by the end of the month.

Pundits say EU leaders need to step back from the hectic fire-fighting that has dictated their crisis response over the last 18 months, and come up with a bold, comprehensive, lasting solution.

More