“Merkel will probably stick to austerity again after the elections”

There’s a core Europe and a peripheral Europe, a rescued Europe and a Europe that wants to be left alone. How can Europe speed up integration?

Europe is all that, indeed, it’s very heterogeneous. Every country has different strengths and it shows whatever the moment in the economic cycle we might be: some countries lead at one point, but some others will lead at another point. The key would be for all countries to come together and combine their efforts against the crisis.

Christine Lagarde of the International Monetary Fund and José Manuel Barroso of the EU Commission have spoken up against too much austerity. But, is German Chancellor Angela Merkel listening?

Even the latest macroeconomics data from Germany tell us that the crisis is finding its way into core Europe, so the argument that Europe needs to change the way it’s handling the crisis seems increasingly plausible. This is about cutting main interest rates and allowing weaker countries like Spain to take more time to reach deficit targets. But it is not a new argument, and Germany has never so far agreed to it. True enough, the G-20 has showed support to the expansionary monetary policies in Japan, and the German economy is slowing down noticeable, so the current scenario could favour a U-turn against austerity in Berlin. That’s not the same as saying they will change course, though.

Angela Merkel leads the polls and will most probably remain as Chancellor after the September elections. Does this mean that she’ll have more margin to adopt a new Europe strategy?

Perhaps Berlin will be more flexible, in terms of imposing austerity in Europe, but unfortunately, I don’t think that will be the case.

Egan-Jones downgraded Germany’s sovereign rates, but the markets cared little. Why was it?

Because Egan-Jones is a small player in the credit ratings sector.

Moody’s said Spain does not need a bailout now and the cost of credit for the Spanish government is falling. Can we believe that things are improving?

What has made a difference is the promise of the European Central Bank of unlimited sovereign bond purchases if that’s necessary. Although the Spanish government has never asked the ECB for help, the markets now know it could and the ECB would be there, so that’s why there are less pressures on Spain. But Spain is not yet in a better situation than it was last July: its economy is in bad shape and it cannot cut its deficit as much and as quickly as Brussels required from Madrid. It’s the ECB that has avoided the worst of the outcomes in this situation.

Be the first to comment on "“Merkel will probably stick to austerity again after the elections”"

Leave a comment