Live within your means

The debate on methods to save the European economy continues

During the meeting that ended yesterday, EU finance ministers were unable to come to a final decision on the details of the anti-crisis plan to support the region's economy worth almost a trillion dollars. Not only European, but also American politicians are no longer opposed to supporting countries burdened with debt. According to economist Nouriel Roubini, this program will not calm markets until European governments begin to confidently cut government spending.

The President of the Eurogroup, Prime Minister of Luxembourg Jean-Claude Juncker said following a planned meeting of the EU Council at the level of finance ministers that the ministers agreed on the main directions for activating the assistance mechanism in the future, but agreement on the technical details of the euro zone stabilization mechanism of 750 billion euros will continue in the new extraordinary meeting on May 21. “The meeting will be aimed at finding means and solutions to agree on the technical details of the stabilization mechanism. There will be nothing dramatic in its implementation,” Mr. Juncker reassured. He also tried to reassure investors, assuring that the euro remains a reliable currency. “The stability of the euro has been and remains guaranteed since the introduction of this currency. What concerns me is not so much the current exchange rate of the euro, but the speed at which it is falling,” Mr Juncker said.

European Commissioner for Monetary Policy Olli Rehn said that the first tranche of financial assistance to Greece has already been allocated. According to Mr. Rehn, 14.5 billion euros were transferred to Greece by partners in the euro zone, and another 5.5 billion euros by the International Monetary Fund. Against the backdrop of this message, Greek government bonds began to rise in price. “Market participants expect Greece to receive money and overcome financial difficulties,” Danske Bank chief strategist Jesper Fischer-Nielsen told Bloomberg. “Against this background, optimism in the market is very high, and it is also supported by purchases from the European Central Bank.”

Mr Juncker said finance ministers were satisfied with proposed programs to reduce the budget deficits of Spain and Portugal, which along with Greece remain a “weak link” in the euro zone. He supported the European Commission's proposal that EU states provide it with draft budgets before they are approved by national parliaments in order to create a pan-European context for the adoption of national budgets. But many European governments believe the measure infringes on their capabilities.

German Finance Minister Wolfgang Schäuble said that Germany is ready to provide assistance to eurozone countries only with the consent of its parliament - this is required by the German constitution.

Well-known economist and New York University professor Nouriel Roubini called on European governments to more boldly cut government spending in order to calm financial markets. “The spread of the crisis in the eurozone continues unabated, and Greece is still just the tip of the iceberg. Now in the eurozone we are faced with the second stage of a normal financial crisis,” Mr Roubini said on the BBC. In his opinion, the European anti-crisis package of $931 billion has not calmed the markets, since it remains unclear whether governments are strong enough to introduce tough measures to limit budget spending. “If these measures are introduced, the markets will stabilize,” Mr. Roubini believes.

However, riots in Greece in response to government spending cuts add to the uncertainty that European governments will be able to solve these problems. Mr Roubini added that it remains to be seen how decisively the UK's new coalition government of Conservatives and Liberal Democrats will act. They are due to announce their plans to reduce their record budget deficit on June 22 (the eve of the G8 and G20 summits in Canada). “When it comes down to it, when we have to make difficult decisions on salaries, on spending, we will see whether this coalition is strong or not,” Mr. Roubini said.

Meanwhile, American senators showed that the international coalition to combat the budget crisis is quite fragile. On Monday, 90 senators voted unanimously to make it more difficult for the IMF to bail out countries like Greece. The senators demanded that the White House independently conduct an examination of loan programs in order to make sure that the country to which the funds are provided will actually be solvent in the future. The Senate's motivation is that in such lending mechanisms the United States participates as a creditor. It is not entirely clear, however, what the Senate resolution technically means: firstly, the aid package for Greece has already been approved, and after that it would be indecent to refuse to other countries with obviously more comfortable circumstances; secondly, achieving solvency is the goal of any IMF program and is provided with appropriate expertise; thirdly, even if the American representative votes against some decision at the IMF (which is impossible to imagine - such decisions simply have no chance of being put to a vote), the United States still does not have veto power. Thus, the Senate's decision is clear evidence of serious political concern. But the White House will have to take this into account.

Senate debate on the financial regulation bill is expected to wrap up this coming Monday, with a final vote coming in a few days. “I think there is reason to believe that the Senate will complete this matter this week,” said White House press secretary Robert Gibbs. “Obviously, the next step will be to agree on some disagreements with the administration, and then the bill will go to the president for signature soon.”

As experts note, large US banks are making major lobbying efforts to prevent the adoption of amendments that could seriously undermine their profits. In particular, this concerns restrictions on trading in over-the-counter derivatives. According to analysts, the adoption of such amendments will seriously affect the income of the largest players on Wall Street - such as Goldman Sachs, Morgan Stanley, JPMorgan Chase and Bank of America.

Nikolay KOCHELYAGIN, Andrey DENISOV