Monday 14 May 2012

0 George Osborne: Angela Merkel damaging UK economic interests

George Osborne accused Angela Merkel of damaging Britain’s economic interests after she speculated that Greece would leave the euro.

Speaking after he arrived in Brussels for meetings with other European finance ministers about the worsening eurozone crisis, Mr Osborne implied that the German chancellor was destabilising the global economy.

George Osborne:Angela Merkel damaging UK

“The eurozone crisis is very serious and it’s having a real impact on economic growth across the European continent, including in Britain, and it’s the uncertainty that’s causing the damage,” said Mr Osborne, the Chancellor.

“Of course countries have got to make difficult decisions about their public finances. We know that in Britain. But it’s the open speculation from some members of the eurozone about the future of some countries in the eurozone which I think is doing real damage across the whole European economy.”

Earlier Mrs Merkel had warned that Greece may be forced to leave the euro if it refused to implement spending cuts agreed with the European Union.

Raising the spectre of a Greek exit, she said “solidarity for the euro” was threatened by the ongoing political crisis in Athens.

Jean-Claude Juncker, the chairman of the eurogroup of finance ministers, usually a staunch supporter of Mrs Merkel’s austerity measures, also criticised her last night, accusing Germany and other hawkish EU countries of using Greece to make “propaganda”. “I don’t envisage, even for a second, Greece leaving. It is nonsense, it is propaganda,” he said.

“I am against this way of dealing with Greece by provoking Greek public opinion. Threatening Greece day after day is not the way of dealing with partners, friends and citizens.”

Stock markets around the world fell sharply with fears mounting that a euro break-up could lead to renewed financial turmoil. The FTSE-100 index of Britain’s major companies fell by two per cent to 5465, with bank shares hit particularly hard. The cost of Spanish government borrowing also hit a record high.

The row leaves Mrs Merkel even more isolated from key eurozone allies as she faces tough negotiations on growth versus austerity with François Hollande, the new Socialist French President, in Berlin today. Mr Hollande will be sworn in and, in an indication of the concern gripping Europe, will almost immediately travel to Berlin to hold talks with Mrs Merkel that will be dominated by Greece’s plight.

Attempts to form a new government in Athens have been thwarted for the past nine days, although the country’s president will meet all major parties this afternoon to discuss forming a “technocratic” administration rather than a coalition.

An outgoing Greek minister warned that the country could descend into “civil war” amid the chaos of a euro exit.

“If Greece cannot meet its obligations and serve its debt the pain will be great,” Michalis Chrysohoidis was quoted as telling a local radio station. “What will prevail are armed gangs with Kalashnikovs and which one has the greatest number of Kalashnikovs will count … we will end up in civil war.”

New elections may be held next month and Greek voters are likely to be warned by European leaders that their country may be ejected from the euro if they do not support parties backing austerity measures.

Today, Mr Osborne may agree to looser banking rules, stipulating how much money banks must keep on their balance sheets, to allow more flexibility in responding to the turmoil.

A report from Fitch, the credit rating agency, said yesterday that the British economy may not re-emerge from recession before 2014 if there is a “shock case” of a disorderly Greek exit from the euro.

Germany and the European Central Bank are thought to have drawn up detailed plans for a Greek exit for the euro. They are designed to stop it provoking panic in other vulnerable countries, particularly Spain and Ireland.

However, this is fraught with difficulties, particularly if Greece refuses to take part in a “negotiated exit”. Mrs Merkel is under increasing pressure in Germany to force Greece out of the single currency to avert several more years of uncertainty. “I believe it’s better for the Greeks to stay in the euro area, but that also requires that we set out a path on which Greece gets back on its feet step by step,” she said.

“The solidarity for the euro will end only if Greece just says, 'We’re not keeping to the [austerity] agreement.’ But I don’t expect that to happen. I do think they are making an effort. There are many, many people in Greece who actually want it.”

Wolfgang Schaeuble, the German finance minister, said: “The price if they decide to leave the euro is very high. It would cause a huge amount of turbulence for all of us.”


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