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BRUSSELS (Reuters) ? Germany and France are exploring radical methods of securing deeper and more rapid fiscal integration among euro zone countries, aware that getting broad backing for the necessary treaty changes may not be possible, EU officials say.
Germany’s original plan was to try to secure agreement among all 27 EU countries for a limited change to the Lisbon Treaty by the end of 2012, making it possible to impose much tighter budget controls over the 17 euro zone countries — a way of shoring up the region’s defenses against the debt crisis.
But in meetings with EU leaders in recent weeks, it has become clear to both German Chancellor Angela Merkel and French President Nicolas Sarkozy that it may not be possible to get all 27 countries on board, EU sources say.
Even if that were possible, it could take a year or more to finally secure the changes while market attacks on Italy, Spain and now France suggest bold measures are needed within weeks.
As a result, senior French and German civil servants have been exploring other ways of achieving the goal, either via an agreement among just the euro zone countries, or a separate agreement outside the EU treaty that could involve a core of around 8-10 euro zone countries, officials say.
No firm decisions have yet been reached.
Reuters exclusively reported on November 9 that French and German officials were discussing plans for a radical overhaul of the European Union to establish a more fiscally integrated and possibly smaller euro zone.
“The Germans have made up their minds. They want treaty change and they are doing everything they can to push for it as rapidly as possible,” one senior EU official involved in the negotiations told Reuters. “Senior German officials are on the phone at all hours of the day to every European capital.”
While Germany and France are convinced that moving toward fiscal union – which could pave the way for jointly issued euro zone bonds and may provide more leeway for the European Central Bank to act forcefully – is the only way to get on top of the debt crisis, some other euro zone countries are unable or unwilling to move so rapidly toward that goal.
Not only Greece, Ireland and Portugal, which are receiving EU/IMF aid, but also Italy and Spain and some east European countries such as Slovakia, would either find it difficult under current economic conditions to meet the budget constraints Germany wants, or simply do not agree with the aim.
Consequently, the French and German negotiators are exploring at least two models for more rapid integration among a limited number of euro zone countries, with the possibility of folding that agreement into the EU treaty at a later stage.
TWO MODELS
One is based on the Pruem Convention of 2005, also known as Schengen III, a treaty signed among 7 countries outside the EU treaty but which was open to any member state to join and was later acceded to by 5 more EU states plus Norway.
Another option would be to have a purely Franco-German mini-agreement along the lines of the Elysee treaty of 1963 that other euro zone countries could also sign up to, officials say.
“The options are being actively discussed as we speak and things are moving very, very quickly,” a European Commission official briefed on the discussions told Reuters.
One source said the aim was to have the outline of an agreement set out before December 9, when EU leaders will meet for their final summit of the year in Brussels.
Herman Van Rompuy, the president of the European Council, which represents EU member states, is supposed to deliver a preliminary report on treaty change at the summit. He has held extensive talks with EU leaders in recent weeks to gauge the feasibility of bringing about rapid treaty changes.
Sarkozy, who has made two speeches in the past two weeks highlighting the need for more rapid fiscal integration in the euro zone, and has acknowledged that it may be inevitable that a ‘two-speed Europe’ emerges, is due to make another keynote address on December 1 which could provide a platform for laying out in more detail the ideas that he and Merkel are developing.
A senior German government official denied there were any secret Franco-German negotiations, but emphasized that both countries saw the need for treaty change as pressing and were exploring how to achieve that in the best way possible.
“Germany and France are continuing to focus on proposals for a limited treaty change that can be presented at the EU summit in December,” the official said, emphasizing that there was a need to act quickly to get changes in place.
Germany’s Welt am Sonntag newspaper reported on Sunday that Merkel and Sarkozy were working on a new Stability Pact, setting out national debt limits, that could be signed up to by a number of euro zone countries and which would allow the ECB to act more decisively in the crisis.
“If the politicians can agree to a comprehensive step, the ECB will jump in and help,” the paper quoted a central banker as saying.
The ECB has bought the bonds of euro zone strugglers in intermittent fashion when they have reached crisis point. Economists say it has to act much more radically to turn the market tide but the central bank, and Germany, has opposed any such move. Commitments to binding fiscal rules by euro zone governments may be the cover it needs to change tack.
“It would be a real disaster if this strategy which is in fact no strategy, this muddling through, were to continue for some months,” Peter Bofinger, one of the five “wise men” who formally advise the German government on the economy, told Irish state broadcaster RTE.
“If this bond run is not stopped it will really endanger the stability of the European and even the global financial system. Bold action by the ECB is definitely needed.”
Reuters reported a similar possibility on Friday, with euro zone officials saying that if much tighter fiscal integration could be achieved among euro zone states, it would give the ECB more room to maneuver and buy sovereign bonds.
BARGAINING PLOY?
While EU officials are clear about the determination of France and Germany to push for more rapid euro zone integration, some caution that the idea of doing so with fewer than 17 countries via a sideline agreement may be more about applying pressure on the remainder to act.
By threatening that some countries could be left behind if they don’t sign up to deeper integration, it may be impossible for a country to say no, fearing that doing so could leave it even more exposed to market pressures.
“Some of this is just part of the posturing you hear — it’s pressure from Germany to go for treaty change as quickly as possible,” the official involved in the negotiations said.
“To some extent you have to see these ideas as part of the bargaining chips that are being put on the table.”
The risk for Merkel and Sarkozy is that if they do ultimately decide to push for a sideline agreement involving only 8-10 euro zone states, it would send a clear signal to the markets that the euro zone is split and that some countries are not seen as full members of the currency union.
That could either mean that some countries in the euro zone are left with fewer voting rights, even if they still use the euro, or it could mean that some countries decide, ultimately, that they would be better off without the euro — a camp that officials say Greece, the crucible of the debt crisis, could fall into.
(Reporting by Luke Baker, Julien Toyer in Brussels, Carmel Crimmins in Dublin and Andreas Rinke and Gernot Heller in Berlin; Writing by Luke Baker, editing by Mike Peacock)
Source: http://us.rd.yahoo.com/dailynews/rss/business/*http%3A//news.yahoo.com/s/nm/20111127/bs_nm/us_eurozone_crisis
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German Chancellor Angela Merkel speaks during the budget debate at the German Federal Parliament, Bundestag, in Berlin, Germany, Wednesday, Nov. 23, 2011. Germany’s chancellor says Greece can only receive its next batch of bailout loans if all parties supporting the new government in Athens commit in writing to the conditions attached to a separate aid package. (AP Photo/dapd/ Maja Hitij)
German Chancellor Angela Merkel speaks during the budget debate at the German Federal Parliament, Bundestag, in Berlin, Germany, Wednesday, Nov. 23, 2011. Germany’s chancellor says Greece can only receive its next batch of bailout loans if all parties supporting the new government in Athens commit in writing to the conditions attached to a separate aid package. (AP Photo/dapd/ Maja Hitij)
German Chancellor Angela Merkel attends the budget debate at the German Federal Parliament, Bundestag, in Berlin, Germany, Wednesday, Nov. 23, 2011. Germany’s chancellor says Greece can only receive its next batch of bailout loans if all parties supporting the new government in Athens commit in writing to the conditions attached to a separate aid package. (AP Photo/dapd/ Maja Hitij)
German Chancellor Angela Merkel leaves the German Federal Parliament, Bundestag, in Berlin, Germany, Wednesday, Nov. 23, 2011. Germany’s chancellor says Greece can only receive its next batch of bailout loans if all parties supporting the new government in Athens commit in writing to the conditions attached to a separate aid package. (AP Photo/dapd/ Maja Hitij)
German Chancellor Angela Merkel attends the budget debate at the German Federal Parliament, Bundestag, in Berlin, Germany, Wednesday, Nov. 23, 2011. Germany’s chancellor says Greece can only receive its next batch of bailout loans if all parties supporting the new government in Athens commit in writing to the conditions attached to a separate aid package. (AP Photo/dapd/ Maja Hitij)
European Commission President Jose Manuel Barroso pauses before speaking during a media conference at EU headquarters in Brussels, on Wednesday, Nov. 23, 2011. The European Commission backed the introduction of jointly issued eurobonds, coupled with stricter budgetary discipline, as the best way out of a debt crisis that’s threatening the 17-country eurozone. (AP Photo/Virginia Mayo)
BERLIN (AP) ? Germany failed to raise as much money as it hoped in its latest bond auction, in a surprising sign that Europe’s biggest economy may not be immune from a debt crisis raging across the continent
A fresh warning that France risks losing its top-notch credit rating and more verbal jousting between German Chancellor Angela Merkel and the EU’s top executive arm also fueled concerns that the bloc is losing the battle to contain a debt crisis that’s already seen three countries bailed out and is threatening much-bigger economies like Italy and Spain.
However, it was the unexpected news that Germany, Europe’s biggest economy and the linchpin of the bailouts, suffered one of its worst bond auctions ever that really caught the eye. The country’s Financial Agency said its latest euro6 billion ($8.1 billion) auction of 10-year bonds met with only 60 percent demand.
German officials cited a record-low yield and the extraordinarily nervous market environment for the auction’s failure, but investors took it as a warning sign that the crisis might even cause trouble to rock-solid Germany.
“If Germany can’t sell bonds, what is the rest of Europe going to do?,” asked Benjamin Reitzes, an analyst at BMO Capital Markets.
The auction result hit stocks hard, including in the U.S. and sent the euro sliding to seven-week dollar lows. By mid-afternoon it was trading 1.3 percent lower on the day at $1.3345.
It also piled the pressure on Germany’s bonds in the secondary markets, sending the yield on the country’s benchmark ten-year bonds up a hefty 0.20 percentage point to 2.08 percent, its highest level since Oct. 28.
Germany, the world’s fourth-largest economy, is seen as the 17-nation eurozone’s most stable pillar and its borrowing rates have been driven down in recent months by high demand from investors seeking shelter from the sprawling debt crisis.
That may partly explain why it suffered what many in the markets are describing as a “failed auction” ? investors may be beginning to think twice about whether the returns on offer are appealing.
Offering only 1.98 percent, the auction’s yield was the lowest-ever for Germany’s ten-year bond. Germany offered an interest rate of up to 3.25 percent at previous auctions of 10-year-bonds this year.
Even so, analysts called the result worrying, though the German government stressed that its refinancing was not at risk. Having sold off only euro3.9 billion, the agency retained the remainder, to be sold off another day.
“The result does not represent any refinancing squeeze for the emitter,” the agency said.
Though Germany is widely-lauded as a model for other eurozone economies, its debt burden is relatively high, by historical standards at about 81 percent of GDP, so it continually has to tap bond market investors for fresh funds. As a result, it won’t want to get in the habit of having too many failed auctions.
One advantage Germany has over practically most European economies is that it’s triple A credit rating is not at threat ? unlike France’s. Though France has seen the yield on its ten-year bond rise in recent days to around 3.65 percent, way ahead of Germany’s equivalent 2 percent, it’s still much lower than the near 7 percent rates that have provoked such turmoil in Italy of late.
On Wednesday, Fitch warned that Europe’s second biggest economy is at risk of losing its cherished top-grade if Europe’s leaders fail to stop the debt crisis from worsening because a “further intensification” would result in a much sharper economic downturn in France and the European Union. Fitch’s warning came two days after another rating agency, Moody’s, delivered a similar message.
And there were few signs Wednesday that Europe’s leaders were pointing in the same direction.
German Chancellor Merkel and the European Union’s executive arm clashed openly on the need to issue common bonds uniting the 17 euro nations ? another sign that Europe is divided in dealing with its deepening debt crisis.
Jose Manuel Barroso, the head of the European Commission promoted the introduction of jointly issued eurobonds, coupled with stricter budgetary discipline, as the best way out of the debt crisis. Eurobonds, he said, “could bring tremendous benefits.”
That’s obviously not Merkel’s view, who publicly poured cold water on the idea for the second day running ? calling the Commission’s push “troubling” and “inappropriate.”
She told lawmakers in Berlin that it was wrong to suggest that a “collectivization of the debt would allow us to overcome the currency union’s structural flaws.”
Germany has long opposed the use of eurobonds, instead calling on profligate member states to clean up their finances which would eventually enable them to borrow at lower rates again.
Proponents of eurobonds argue that they would immediately ease refinancing for weaker eurozone nations. For Germany, though, a pooling of its strength with the weaker members, would most likely to lead to higher borrowing costs.
Instead, Merkel reiterated her call for changes to the EU treaties to guarantee strict enforcement of fiscal and budgetary discipline as “a first step toward a fiscal union.”
The easiest way for Europe to counter its debt problems would be for its economies to grow, automatically lowering its debt ratios and generating more revenues. But that hope was dashed yet again as a pair of indicators showed the bloc’s economy as being in deep trouble.
The sense of an impending recession was evident in the findings of a closely watched survey from financial information company Markit. Its monthly survey showed that the eurozone contracted for the third month running in November and that the deteriorating economic picture is not just confined to debt-stressed countries such as Greece.
The survey suggests that the eurozone would contract at a quarterly rate of 0.6 percent in the fourth quarter and that the problems are increasingly spreading to Europe’s two biggest economies, Germany and France, Markit said.
Further grim news emerged with a shock announcement that eurozone industrial orders collapsed by a massive 6.4 percent in September from the previous month.
Official figures last week showed that the eurozone only narrowly avoided contracting in the third quarter, growing by only 0.2 percent during the period.
___
Geir Moulson in Berlin, Raf Casert in Brussels and Greg Keller in Paris contributed to this report.
Associated Press
Source: http://hosted2.ap.org/APDEFAULT/cae69a7523db45408eeb2b3a98c0c9c5/Article_2011-11-23-EU-Germany-Financial-Crisis/id-695e476ebb6947a3802663a61c36a9c6
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BANGKOK ? World stock markets perked up Monday after a weekend meeting of the leaders of France and Germany provided a promise of action on Europe’s debt crisis.
Oil prices rose above $84 a barrel while the dollar slipped against the euro and the yen.
German Chancellor Angela Merkel and French President Nicolas Sarkozy on Sunday said a comprehensive response to the debt crisis would be finalized by the end of the month, including a detailed plan to ensure European banks have adequate capital. Stock markets welcomed the announcement, even though it offered little in the way of specifics.
In early European trading, Britain’s FTSE 100 rose 0.6 percent to 5,334.59. Germany’s DAX gained 0.5 percent to 5,704.35 and France’s CAC-40 climbed 0.5 percent to 3,110.99. Wall Street was poised for a higher opening, with Dow Jones industrial futures up 0.9 percent at 11,166 and S&P 500 futures rising 1 percent to 1,166.
Shares in Asia were higher after a tentative start. Hong Kong’s Hang Seng pared early losses to edge up marginally at 17,711.06. South Korea’s Kospi rose 0.4 percent to 1,766.44 and Australia’s S&P/ASX 200 gained 0.9 percent to 4,201.
The Shanghai Composite Index was down 0.6 percent at 2,344.79 and the Shenzhen Composite Index for China’s smaller second stock market was 0.6 percent lower at 997.84.
Stocks in the Philippines, Singapore, Indonesia and India rose. Markets in Japan and Taiwan were closed for national holidays.
Investors were treading carefully as Greece struggled with its finances to qualify for the next installment of an international bailout loan needed to avoid bankruptcy. A Greek government default would cause the value of Greek bonds held by European and U.S. banks to plunge in value with possible global repercussions.
“After so many months, it still is not clear how leaders are going to resolve” the European debt crisis, said Lee Kok Joo, head of research at Phillip Securities in Singapore. “I think a lot of investors are just waiting to see what the next step is that some of these leaders will take.”
Analysts have urged European officials to identify all the banks in the region that need to replenish their capital reserves, then decide whether to compel them to raise that money from markets and to provide government financing to the ones that can’t.
Many experts say the capital cushions of many European banks must be strengthened in order to withstand a Greek default.
“Discussions over the weekend between German Chancellor Merkel and French President Sarkozy delivered little in substance,” Credit Agricole CIB said in a research note.
“In the meantime, markets may give eurozone officials the benefit of the doubt, but patience will run thin if no progress is made on these fronts,” it said.
Chinese real estate shares fell after a weekend report by a research firm that housing prices in 100 cities declined in September for the first time this year following repeated interest rate hikes and other government efforts to cool an overheated economy.
Hong Kong-listed China Overseas Land & Investment Ltd. lost 3.5 percent. China Resources Land Ltd. fell 3.4 percent. China Vanke Co. dropped 3.1 percent.
Meanwhile, energy shares rose on the back of stabilizing oil and gold prices. Australia’s Woodside Petroleum gained 1.3 percent and Energy Resources of Australia jumped 6.5 percent.
A choppy day Friday on Wall Street left the Dow Jones industrial average down 20 points after a mixed U.S. jobs report and credit-rating cuts for Italy and Spain renewed concerns about Europe’s debt crisis.
U.S. employers added 103,000 jobs last month, about double what economists had expected. The government also said more jobs were added in July and August than previously reported. But the payroll gains weren’t enough to bring down the unemployment rate, which remained at 9.1 percent.
The euro rose to $1.3535 from $1.3388 in late trading Friday in New York. The dollar weakened to 76.64 yen from 76.82 yen.
In energy trading, benchmark crude for November delivery was up $1.04 to $84.02 per barrel in electronic trading on the New York Mercantile Exchange. The contract climbed 39 cents to end Friday at $82.98 a barrel in New York.
Brent crude was up 62 cents at $106.49 a barrel on the ICE Futures Exchange in London.
Source: http://us.rd.yahoo.com/dailynews/rss/stocks/*http%3A//news.yahoo.com/s/ap/20111010/ap_on_bi_ge/world_markets
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DUKOVANY NUCLEAR PLANT, Czech Republic (AP) ? Surrounded by corn fields, bicycle routes and a nature reserve, the eight huge cooling towers of the Dukovany nuclear power plant have dominated the Czech countryside near the Austrian border for almost three decades.
Against the odds, the government has worked to keep it that way for many years to come.
Defying growing global skepticism over the use of atomic energy, it is planning to dramatically increase the country’s nuclear power production ? a move that would give the country a place among Europe’s most nuclear-dependent nations.
The Czech plan reflects a sharp division over nuclear use among European nations, and relations with neighboring countries that have decided to go nuclear free could be seriously harmed.
German Chancellor Angela Merkel’s government decided to phase out nuclear energy by 2022 following the March meltdown at Japan’s Fukushima plant, and Switzerland has followed suit. Austria abandoned nuclear energy after the 1986 Chernobyl nuclear disaster and strictly opposes the Czech nuclear program.
Other former Soviet bloc nations, now in the EU, are following the Czechs’ lead on nuclear power ? reflecting diverging economic needs between east and west.
Slovakia is currently building more nuclear facilities. And Poland has engaged in talks with French, U.S. and Japanese firms about know-how and technology for its first nuclear installation to be completed by 2030.
The Czechs argue nuclear energy is needed because it is a clean and cost efficient source.
They currently rely on six nuclear reactors ? four 440-megawatt reactors in Dukovany and two 1,000-megawatt reactors at another plant in Temelin located an hour’s drive north of the Austrian border ? for 33 percent of their total electricity. The government hopes to at least double that output.
“We consider increasing electricity production in nuclear plants from some 30 percent to about 60 percent by 2050,” Deputy Industry and Trade Minister Tomas Huner told the Associated Press.
“We have been mining uranium and there’s no doubt nuclear energy is irreplaceable for us in the long term,” said Huner, whose ministry has to present the new energy overhaul for the next 50 years to the government by year’s end.
A trio of big players ? U.S.-based Westinghouse Electric Co., a subsidiary of Japan’s Toshiba Corp., France’s state-owned nuclear engineering giant Areva SA and a consortium led by Russia’s Atomstroyexport ? are already bidding to win a lucrative multibillion tender to build two more reactors at the Temelin plant. The reactors are expected to be operational in the middle of the next decade.
The plant has been heavily protested by Austrian environmentalists who demand it be closed because of security concerns. Czech authorities insist both plants are safe and will have no problems passing so-called nuclear reactor stress tests currently being conducted across Europe after the Japanese disaster.
Opened a year before the Chernobyl disaster, Dukovany’s life was expected to expire in some 30 years. Germany is closing plants of the same age ? but the Czechs refuse to do that despite international pressure.
The nation’s biggest electricity source last year has already undergone a 26 billion koruna ($1.4 billion) overhaul aimed at increasing its output and improving control systems, as the plant gets ready to ask the nuclear authority for a license extension of at least 10 more years, plant spokesman Petr Spilka said.
At least one new 550-megawatt reactor is to be built at the Dukovany site and more places have been identified for new plants, Huner said.
Huner said a completely new 2,000-megawatt plant in the northeastern part of the country could be operational by 2060.
Unlike the Austrian and German publics, the Czechs support nuclear energy ? though they may not be happy to have a plant in their backyard.
Local environmentalists called the government plan “bizarre,” saying it would lead to the creation of an unpredictable energy sector.
“Such a heavy reliance on one dominant source of energy could be problematic,” said Martin Sedlak, an energy expert for the Friends of the Earth Czech Republic. “The investments into nuclear energy are economically too demanding and unpredictable.”
They are not alone.
Austrian Foreign Minister Michael Spindelegger has vowed to use any legal and political means to stop the Czechs, and his Environment Minister Nikolaus Berlakovich said his country considered the Czech plan “the wrong one” in the wake of Japan’s nuclear disaster.
“It can’t be that someone expands nuclear energy after Chernobyl and especially Fukushima,” Berlakovich told APTN. “Austria is interested in good neighborly relations with the Czech Republic. But in the interest of our people’s security we will also reserve all political and legal steps.”
The Czechs remain determined to go ahead.
“We consider that what happened in Fukushima did not, by any means, put into question the arguments for nuclear energy,” President Vaclav Klaus said at the U.N. last month. “These arguments are strong, economically rational and convincing. Nuclear power is a stable, legitimate, and in some countries, irreplaceable source of energy today.”
___
Monika Scislowska in Warsaw, Poland and APTN videojournalist Philipp-Moritz Jenne in Vienna contributed.
Associated Press
Source: http://hosted2.ap.org/APDEFAULT/3d281c11a96b4ad082fe88aa0db04305/Article_2011-10-08-EU-Czech-Nuclear-Future/id-a8937dd2bff940dbb14e33ba9479dc55
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