Tags: German | S&P | Warning | Euro | Leaders

Schaeuble: S&P Warning ‘Best Encouragement’ for Euro Leaders

Tuesday, 06 Dec 2011 10:37 AM

German Finance Minister Wolfgang Schaeuble said Standard & Poor’s downgrade warning for 15 euro- area governments will help force European leaders to ratchet up efforts to resolve the two-year-old crisis this week.

A day after German Chancellor Angela Merkel and French President Nicolas Sarkozy strengthened their push for new rules to tighten euro-area economic cooperation, Schaeuble called S&P’s warning -- issued hours after Merkel and Sarkozy met in Paris -- the “best encouragement” to drive toward a solution at a Dec. 8-9 European summit in Brussels.

“The truth is that markets in the whole world right now don’t trust the euro area at all,” Schaeuble said today in Vienna. S&P’s statement will prompt European leaders “to do what we’ve promised, namely to take the necessary decisions step-by-step and to win back the confidence of global investors.”

Merkel and Sarkozy are leading the charge toward the latest crisis fix after agreeing a joint position on automatic penalties for deficit violators and anchoring debt limits into euro states’ constitutions. Investors are looking toward such an agreement among euro countries to pave the way for intensified action from the European Central Bank.

With the EU summit looming, U.S. Treasury Secretary Timothy Geithner arrived in Frankfurt to meet with ECB President Mario Draghi and Bundesbank President Jens Weidmann before heading to Berlin for talks with German Finance Minister Wolfgang Schaeuble. The ECB holds a policy meeting on Dec. 8.

Euro Rises

The euro rose 0.05 percent against the U.S. dollar, trading at $1.3408 at 12:34 p.m. Frankfurt time -- down from an intraday high of $1.3487 yesterday as the S&P’s warning doused optimism over joint action by euro leaders. S&P put Germany and France among the six AAA-rated European countries on watch for potential downgrades pending the outcome of the EU summit.

Merkel sidestepped a further response to S&P’s action, saying leaders will press ahead toward the meeting undeterred. She said credit assessment is S&P’s “responsibility.”

“We will take decisions on Thursday and Friday that are important and unavoidable for the eurozone,” Merkel said today after meeting with Afghan President Hamid Karzai in Berlin. “I have always said this is a longer process that will take quite a long time. We will keep moving forward on this path.”

Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the rating company’s warning was like a “knockout blow” to governments that are undertaking measures to scale back deficits.

“I have to wonder that this news reaches us out of the clear blue sky at the time of the European summit -- this can’t be a coincidence,” Juncker said in an interview today on German radio broadcaster Deutschlandfunk.

‘Excessive’

The S&P move was “excessive,” said Vincent Truglia, managing director at New York-based Granite Springs Asset Management LLP and a former head of the sovereign risk unit at Moody’s Investors Service, a rival rating company.

“Countries like Germany, Luxembourg, Netherlands, Finland are AAA, and Austria is a pretty strong AAA,” he said.

S&P said that ratings could be cut by one level for Austria, Belgium, Finland, Germany, Netherlands and Luxembourg, and by up to two notches for the other governments.

The other countries warned are Estonia, France, Ireland, Italy, Malta, Portugal, Slovakia, Slovenia and Spain. S&P said it maintained the negative outlook for Cyprus, and Greece wasn’t put on “creditwatch.”

Permanent Rescue Fund

Among the measures announced by Merkel and Sarkozy were plans to fast-track the euro’s permanent rescue fund to 2012, one year earlier than envisaged. Germany and France will also seek to ensure that decisions by the fund, the European Stability Mechanism, can be made by a “qualified majority” rather than a unanimous vote by the participating governments. Sarkozy said they aimed to reach consensus on treaty change with other euro leaders by March.

After Merkel last week compared the mission to a “marathon,” Sarkozy said yesterday that euro leaders would go on a “forced march” to win back confidence.

“We want to go as fast as possible based on this agreement between France and Germany, which is open to others,” Sarkozy said after meeting with Merkel over lunch at the Elysee palace in Paris.

Both leaders declined to comment on speculation that the ECB could step up bond purchases, following statements last week from the ECB’s Draghi that “other elements might follow” from the central bank if European leaders agree on a “new fiscal compact.”

Automatic Sanctions

“It’s a step in the right direction for the ECB but we’ll want to know how the automatic sanctions are triggered,” said Klaus Baader, co-chief economist at Societe Generale SA. “When France and Germany have joint press conferences and say we agree on everything you have to take that with a pinch of salt.”

Merkel and Sarkozy yesterday repeated their rejection of jointly sold euro bonds in solving the crisis, while seeking to calm concerns of euro-area member states that the European Court of Justice would be able to veto national budgets as part of their proposal for centralized deficit supervision.


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German Finance Minister Wolfgang Schaeuble said Standard Poor s downgrade warning for 15 euro- area governments will help force European leaders to ratchet up efforts to resolve the two-year-old crisis this week. A day after German Chancellor Angela Merkel and French...
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Tuesday, 06 Dec 2011 10:37 AM
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