German election spells further insecurity for eu

With the world’s attention understandably elsewhere, the Eurozone spent the last week maintaining the status quo. North Africa’s chaos rattled European stock markets, and the ongoing economic recovery lead to threats of looming inflation, but the calm before the upcoming March summits held.

Portugal scraped by, avoiding bail-out for another week, while prime minister Jose Socrates announced a 58.6% reduction in the state deficit from last year -- proof, he claimed, that his government’s austerity measures were working. Not enough proof, said most observers, who think that EU intervention is the only thing that will restore market confidence in the country, which has been fighting off stratospheric, unsustainable borrowing costs in the last few weeks.

Greek Prime Minister George Papandreou, visiting Angela Merkel in Berlin this week as part of a pre-summit tour of EU leaders, urged Merkel to consider more flexibility in dealing with the Eurozone’s ongoing debt crisis. Flexibility meaning, in this case, lowering the 5% interest rate on Greece’s bail-out funds, allowing debt buybacks on the table during the March summits and regulatory freedom for the EU’s rescue fund agency, the European Financial Stability Facility.

But Papandreou’s timing was poor. He arrived in Berlin the day after Merkel, driven by domestic politics in much of her actions over the last year, saw her party decimated in local elections on Sunday. Her Christian Democrats received a mere 21% of the vote in Hamburg, down from 42% in 2008.

Source: Minyanville