Tags: WSJ | Merkel | Sarkozy | credibility

WSJ: Merkel, Sarkozy Have Lost All Credibility

By    |   Monday, 07 Nov 2011 01:06 PM

Throughout the eurozone's ongoing debt crisis, German Chancellor Angela Merkel and French President Nicolas Sarkozy have said they will do whatever it takes to save the euro.

As it turns out, their assurances haven't been worth the paper they were written on, according to The Wall Street Journal.

First, they said there would be no defaults by eurozone countries. Yet they approved a haircut on Greek debt, calling it "a unique situation."

Then another Greek haircut followed 12 weeks later.

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(Getty Images photo)
Plus, in September the European leaders said they had six weeks save the euro, the article reports. That timeframe passed without a coherent plan.

Eurozone leaders produced nothing of substance at their summit in Cannes last week.

Yet, the Journal article notes, Merkel and Sarkozy did issue a most remarkable statement: that Greece was free to leave the euro. They decided that the eurozone membership will voluntary because they don't want countries in the currency bloc to be liable for other countries' debts, not out of any principle of national self-determination.

The importance of the statement is huge. "At a stroke, they have introduced foreign-exchange risk into a sovereign-debt market still grappling with the realization that euro-zone government bonds contain unexpected credit risk," the Journal reports.

"No wonder the markets won't lend and China won't invest in Europe's bailout funds," the Journal eports. "Nothing these leaders say any longer carries any credibility."

The European economy seems to be disappearing down a sink hole, the Journal reports. The weakest economies are being forced to try to decrease their debts through austerity measures that prompt a downward cycle. The weakest countries are stuck in an uncompetitive exchange rate and suffer higher borrowing costs that decrease their competitiveness.

Other observers say that publically raising the possibility of Greece leaving the eurozone may have been necessary to convince Greece to drop plans for a referendum on the eurozone's bailout and accompanying austerity plan for the country.

Greek Prime Minister George Papandreou proposed a referendum on the austerity plan, which would have been seen on a vote on keeping the euro, but dropped the idea.

Merkel and Sarkozy may have pursued Greece to drop the referendum plan, but they reintroduced currency risk by raising the possibility that a country might drop the common currency, according to The Financial Times.

A German euro is suddenly not the same as a Greek euro even if they are now interchangeable.

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Throughout the eurozone's ongoing debt crisis, German Chancellor Angela Merkel and French President Nicolas Sarkozy have said they will do whatever it takes to save the euro. As it turns out, their assurances haven't been worth the paper they were written on, according to...
WSJ,Merkel,Sarkozy,credibility
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2011-06-07
Monday, 07 Nov 2011 01:06 PM
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