Thursday, January 26, 2012

Merkel Offers No Magic Bullet

Wall Street Journal
January 26, 2012

German Chancellor Angela Merkel, sharply criticized for her government's prescriptions of austerity as a cure for the euro zone's sovereign-debt crisis, said labor-market reforms and greater European integration also were needed to correct flaws in the makeup of the common currency.

But in a speech formally opening the World Economic Forum, she gave no sign that Germany would be willing to pour more resources into the euro zone's inadequate bailout funds —a boost viewed by many analysts as essential to combat a debt crisis that has threatened to spread to Italy and Spain. She warned against putting faith in such vehicles.

Ms. Merkel's speech was closely watched to see if she would open the way to new approaches to dealing with the debt crisis. She didn't.

The crisis, now in its third year, is dragging on amid worries that a messy default by Greece could unleash a new wave of instability; talks on Greek debt restructuring continued Wednesday in Paris. Though immediate pressure on the currency area has been lifted by European Central Bank action to provide euro-zone banks with huge volumes of three-year liquidity, few analysts believe that alone is sufficient to finally settle the turmoil.


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