The eastern block of Europe owes up to 1.75 trillion to Germany and switzerland, and when they default (which will happen soon now) Germany and Switzerland will go down as well and there goes Europe
This is going to cause the Eurozone to disintegrate unless something can be done soon.
I agree with what they have chosen to do, after seeing the u.s. bailouts of trillions not make a dent, Germany is going to let them fail and protect themselves.
Failure is a horrible thing for a country to go through but it can then at least have a chance to start over one day.
Consant bailouts from within or from outside sources only prolong and make the end result worse when the situation is so deep and systemic.
Sometimes the only option is to amputate or risk infection and death.
EU Rejects Pleas for Eastern Aid Package, Bailout for Carmakers
By James G. guy
March 1 (Bloomberg) -- European Union leaders rejected pleas for an aid package for eastern Europe and EU funds for carmakers, bowing to German concerns over budget deficits as the economic slump deepens.
EU leaders vetoed a call by Hungary for loans of 180 billion euros ($228 billion) for ex-communist economies in eastern Europe, and told automakers such as General Motors Corp.’s European arm to look to national governments for help.
“I would advise against taking huge numbers into the debate,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels today. “I see a very different situation -- you can compare neither Slovenia nor Slovakia with Hungary.”
The worst economic crisis since World War II is devastating eastern Europe, putting at risk EU goals of stitching together a continent-wide free market.
The EU’s $17 trillion economy will contract 1.8 percent in 2009, the European Commission predicts. Latvia, a former Soviet republic that was the bloc’s star performer only three years ago, will shrink 6.9 percent. Growth in Poland, the biggest eastern economy, will tumble to 2 percent, the slackest pace since 2002.
Investors fleeing eastern Europe to cover losses at home have pushed down Poland’s zloty by 28 percent against the euro in the past six months, Hungary’s forint by 21 percent, Romania’s leu by 18 percent and the Czech koruna by 12 percent.
Nine eastern leaders held a pre-summit meeting early today to warn the West against putting up new walls in Europe, five years after the EU overcame historic divisions by admitting its first eastern members.
‘Protectionism’
“We all wish that Europe avoids the temptation of protectionism,” Polish Prime Minister Donald Tusk said.
Merkel, representing the biggest contributor to the EU budget, said aid for eastern Europe needs to be channelled through international institutions like the International Monetary Fund.
Last week three international lenders -- the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank -- announced loans of up to 24.5 billion euros for eastern European banks.
As budget deficits swell beyond the EU’s limit of 3 percent of gross domestic product, Merkel’s plea for “a return to solid fiscal management” met with a mixed response. The EU set no deadline for governments to erase their deficits.
So far, national stimulus packages, welfare spending and cash from the EU’s central budgets have pumped 3.3 percent of EU-wide GDP into the economy, the Brussels-based commission estimates. As a result, it forecasts that the 27-nation EU’s overall budget gap will rise to 4.4 percent of GDP in 2009 from 2 percent last year.
Hungary’s Aid
Hungary, already the recipient of 6.5 billion euros in EU aid, also sowed divisions among eastern leaders, with some saying the EU’s newcomers shouldn’t be singled out as an economic trouble spot.
“I’m strongly against creating small blocs inside the European Union,” Estonian Prime Minister Andrus Ansip said. “We have to keep together and act together.”
Opposition to a one-size-fits-all approach to eastern Europe’s economic woes also came from Philippe Maystadt, head of the Luxembourg-based EIB, an EU-operated bank that provides project finance.
“Some countries are in a better position than others,” Maystadt said today. “That’s the reason why we think we must keep a country-by-country approach.”
Sarkozy Clash
French President Nicolas Sarkozy triggered an east-west clash over protectionism by saying on Feb. 5 that it “isn’t justified” for recession-hit French carmakers to build plants in places like the Czech Republic instead of creating jobs at home. European regulators yesterday forced Sarkozy to guarantee that 6 billion euros in loans to Renault SA and PSA Peugeot Citroen, France’s two largest carmakers, won’t put foreign rivals at a disadvantage.
The leaders rejected calls to dip into EU funds to prop up the car industry, which is likely to suffer a sales drop of as much as 18 percent this year, according to EU forecasts. Instead, the leaders said it is up to each country to step in.
General Motors, the biggest U.S. carmaker, last week sought 3.3 billion euros in assistance for its European operations. GM last week reported a loss of $30.9 billion for 2008, including $2.8 billion from Europe.
The EU has already promised to double EIB lending for green transport projects including cleaner cars to 4 billion euros in each of the next two years. Merkel called today for a further boost to spur “modern engine technologies.”
To contact the reporter on this story: James G. guy in Brussels at jneuger@bloomberg.net
