Germany

Journalists arriving early for the European Commission’s daily midday briefing Monday caught a once-familiar figure in the press room: Karl-Theodor zu Guttenberg, the former German defence minister who resigned in disgrace earlier this year after it was revealed he plagiarised his doctoral thesis.

The aristocratic zu Guttenberg , once widely tipped as a future German chancellor, was in Brussels at the invitation of Neelie Kroes, telecoms commissioner, to work on an anti-censorship initiative targeted at dictatorships blocking parts of the internet.

“This is not a political comeback,” zu Guttenberg insisted, on what looked a lot like the first step of his political comeback. 

German chancellor Angela Merkel during a press conference Thursday

Our friends and rivals over at The Daily Telegraph have gotten their hands on an interesting document from the German government detailing its proposals for EU treaty change, and have helpfully posted it online (with an English translation by the Open Europe think thank).

Although the Telegraph focuses on its implications for Britain, there is a significant amount of detail on how Berlin would like to change eurozone economic governance, including yet another stab at enshrining bondholder “haircuts” in the EU treaties.

For those who haven’t followed the debate closely, there is now a closed-door fight going on about whether Greece really will be the only country that sees its bondholders pushed into losses – as the eurozone’s leaders have repeatedly insisted in their summit conclusions – or whether the bloc’s new €500bn rescue fund, which could come into place as early as next year, should allow for organised defaults.

Although almost all EU institutions – including the European Commission and European Central Bank – want to make explicit Greece was a one-off, the German paper makes clear they want to keep the door open. 

A tram passes the euro sign sculpture in front of the European Central Bank ( ECB) in Frankfurt, Germany. Photographer: Hannelore Foerster/Bloomberg

Welcome to our continuing coverage of the eurozone crisis. All times are London time. By Tom Burgis and John Aglionby on the news desk in London, with contributions from FT correspondents around the world. This post should update automatically ever few minutes, but it may take longer on mobile devices.

The turmoil in the eurozone has taken a troubling turn in recent days, with anxiety spreading from Europe’s periphery to its “core” countries. Even as Italy’s Mario Monti readies his economic agenda to be presented today, investors are looking at France, the Netherlands and Austria with increasing unease and wondering whether the ECB might yet ride to the rescue. Over in Greece, today is the anniversiary of 1973′s mass student protests – with demonstrators once more planning to take to the streets. And the bond markets are showing ever more strain, with today’s Spanish bond auction likely to test sentiment still further. We’ll bring you all the latest as it happens.

 

In a new article, George Soros warns German voters that they risk another Depression.

The Fed pumped dollars into European banks, Timothy Geithner pleaded with EU finance ministers to take quick action, and in today’s FT former Obama administration economic major-domo Larry Summers warned that incrementalism in the eurozone is akin to the slow bleeding of the Vietnam war.

It seems like the week the Americans jumped into the crisis surrounding the euro with both feet.

Now comes a compelling treatise from yet another major American economic thinker, financier George Soros, who has written in the New York Review of Books echoing Summers’ concerns about incrementalism and predicting that a common eurozone treasury is imminent – and may be the only solution to the crisis. 

Europe’s track record of getting its member states to abide by common debt rules is clearly a mixed bag. Perhaps not for long, if Günther Oettinger, the German energy commissioner has his way.

In an interview with Bild, the mass-circulation daily, Oettinger floats a new debt-busting plan which he hopes might succeed where past treaties have failed: countries with excessive debt should have to live with the mortification of having their national flags flown at half mast outside official European Union buildings.

The unconventional idea – acknowledged as such by the commissioner – “would only be a symbol, but it would be a powerful deterrent,” he said. 

Gerhard Schröder’s unexpected re-emergence as a voice for European fiscal integration may or may not change minds in increasingly eurosceptic Germany. But in our half-hour interview, the former chancellor made a pretty heart-felt case that the country’s leadership should be pressing ahead with pro-EU economic policies, even if they are unpopular.

Given the limited space we have in the daily newspaper, we thought Brussels Blog readers might be interested in a fuller account of his views on the issue. As we noted, Schröder was careful not to directly attack his successor, Angela Merkel, for her recent handling of the crisis – something done last month by Helmut Kohl, who unlike Schröder is a member of Merkel’s own political party.

But he did take a more subtle dig. He made the case that politicians need to push through unpopular policies if they believe in them – and then noted he paid the price for reforms in German labour and social benefit policies, collectively known as Agenda 2010, which are now credited with leading to an economic turnaround. 

German finance minister Wolfgang Schäuble

Influential Nobel Prize-winning economist Paul Krugman has picked yet another fight with eurozone politicians, this time with Germany’s Wolfgang Schäuble.

On his New York Times blog, Krugman takes issue with the German finance minister’s claim at a panel discussion in Frankfurt on Thursday that “economists worldwide” agree the 2008 eurozone crisis was triggered by excessive public debt “everywhere in the world”.

Krugman says excessive public debt actually triggered a crisis in only one country, Greece. Ireland and Spain’s problems only become a public debt crisis after private-sector bank debt was moved onto the government books through bail-outs. Similarly, until the recent standoff over the US debt ceiling, American problems have originated in the financial sector. 

Greek riot police confront protestors in front of parliament in Athens on Wednesday

Just as one Greek crisis appears to be dissipating, another one flares up that risks pushing Athens into default in a matter of weeks. For those struggling to follow along, here’s another one of our quick primers – and a guide for what to watch for in the coming days.

For much of the last month, officials have been fretting that unless they can piece together a new €120bn bail-out for Greece by next week, Athens would run out of money. The first default by an advanced economy in 60 years would ensue, potentially wreaking havoc across the eurozone.

The reason behind the fear was a complicated domino effect that started with the International Monetary Fund: the IMF was going to withhold its €3.3bn in aid due this month unless the European Union could ensure Greece could pay its bills for another year. Greece, however, is going to be unable to pay its bills next year without a new bail-out. 

Monday night, the work of EU finance ministers meeting in Brussels today to unravel the Greek debt crisis got a whole lot harder: Standard & Poor’s downgraded Greek sovereign bonds to just a few notches above default.

If ministers were hoping to “re-purpose” Greek debt in a way that would prevent the eurozone’s first-ever default, S&P is basically telling them: Good luck; we don’t believe you can do it.

But a closer reading of the S&P report may give the eurozone leaders an out: the credit rating agency seems to have ignored the possibility that the new Greek bail-out will opt for a roll-over of Greek bonds, a plan backed by the European Central Bank, instead of a debt swap, which is supported by Germany. 

A decision about how to keep Greece solvent is coming to a head, and for those keeping tabs, here’s a quick primer on what to watch for in the next few days.