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Sat July 14, 2012
Toil And Trouble: Eurozone Pot Continues To Boil
Originally published on Mon July 16, 2012 4:54 pm
SCOTT SIMON, HOST:
This is WEEKEND EDITION from NPR News. I'm Scott Simon.
There's more gloomy news from the eurozone this week. Italy saw its sovereign debt rating lowered by one agency, at just a couple of notches above junk status. In Spain, civil servants, coalminers, and others took to the streets once again to protest more spending cuts and tax hikes. And Germany's highest court heard arguments challenging the constitutionality of two measures considered central to efforts to try to contain the euro crisis.
NPR's Eric Westervelt joins us from Berlin. Eric, thanks so much for being with us.
ERIC WESTERVELT, BYLINE: Good to be here, Scott.
SIMON: Let's begin with got some good news because Spain got some good news this week. But there were new protests there.
WESTERVELT: The week started out with the eurozone finance ministers agreeing to give Spain more time, time they really needed to meet deficit-cutting targets. And they outlined the first initial 30 billion in aid for Spanish banks, aid that could go up to more than 100 billion euro. Spanish banks are in deep trouble in part because of the bursting of the real estate bubble there.
At the same time, Scott, the government announced another round of painful spending cuts and tax increases. This is a country tiring of seemingly endless cycle of tax increases and spending cuts. This is the biggest single package of budget cuts in Spain's democratic history. And Spaniards are already reeling. The jobless rate is nearly 25 percent and now they'll see lower wages, higher energy bills, and the value added tax will go up to 21 percent from 18.
There are also street clashes in Madrid and elsewhere between police and coalminers and their supporters, which showed once again the widening anger at the economic pain in Spain and elsewhere in the eurozone.
SIMON: Potentially, Eric, how bad a blow is it to Italy, which after all is the third largest economy in the eurozone area? Moody's deciding to downgrade its sovereign debt to almost junk status.
WESTERVELT: Well, it was just one ratings agency but it certainly raises pressure again on Italy, Scott. The government cried foul and said the country is, in fact, on the right path. The Prime Minister Mario Monti has started a 20 billion euro austerity package and he's moved to overhaul Italy's pension system, which badly needed reform. But Moody's said Italy's, you know, near-term economic outlook has deteriorated again. With both and weaker growth and higher unemployment, that raises the risk, the agency said, of Italy's failing to meet its costs-cutting targets, which in turn could weaken, again, market confidence in Italy and make the country's borrowing costs soar and become unsustainable. You know, Spain, as we mentioned, got a bailout for its troubled banks. And the speculation continues that, you know, Italy may well be next.
SIMON: And I understand former Prime Minister Berlusconi indicated this week that he might be interested in making a political comeback. I'm wondering if finance ministers in the eurozone said, well, this is welcome news.
WESTERVELT: ...I mean relations between Berlusconi and key EU players in Berlin, Brussels, and Paris were pretty bad by the time he resigned. Officials privately celebrated when he stepped down. But there is growing speculation now Berlusconi may mount a populist, anti-euro comeback for elections scheduled for the spring. He told a leading Italian paper this week, quote, "I'm told the entire business community wants me to return now."
I don't think you can ever count him out and the euro crisis may yet produce more sort of strange alliances and strange political resurrections.
SIMON: Finally, Eric, help us understand the high court in Germany that heard arguments that challenged the constitutionality of a couple of the most important measures that Europe is trying to use to fight the debt crisis.
WESTERVELT: Well, at stake is Germany's commitment of some $27 billion as part of this important strengthening of Europe's permanent rescue fund. It's called the European Stability Mechanism. Opponents have filed suits, Scott, against Germany's contribution to that fund, calling it unconstitutional as well as a second measure to reduce deficits and harmonize spending rules.
These two measures, Scott, are key pillars of the effort to fight this debt crisis. Germany's finance minister testified before the high court, basically warning the justices that even a delay in making a ruling on this could have huge negative impact on financial markets in Europe and the world. Some commentators here criticized that as a kind of blackmail, and said Germany's, you know, postwar constitution comes first. But this is a key issue to be watching as the justices weigh this.
SIMON: NPR's Eric Westervelt in Berlin. Thanks so much.
WESTERVELT: You're welcome. Transcript provided by NPR, Copyright NPR.