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chancellor angela merkel


German Chancellor Angela Merkel has announced she will step down in 2021, following recent election setbacks.

She told a news conference in Berlin: “I will not be seeking any political post after my term ends.”

Angela Merkel also said she would not seek re-election as leader of the center-right CDU party in December. She has held the post since 2000.

The CDU was severely weakened in October 28 poll in the state of Hesse, the latest in a series of setbacks.

Both the CDU and its national coalition partners, the Social Democrats, were 10 percentage points down on the previous poll there.

The election comes just weeks after Angela Merkel’s Bavarian sister party, the CSU, suffered huge losses in a state parliament vote.

Parties like the left-leaning Greens and the far-right, anti-immigration AfD have grown in national support following the 2017 general election, as backing for the major centre parties has waned.

Image source Wikimedia

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Angela Merkel said she took “full responsibility” for poor performance.

She said: “As chancellor and leader of the CDU I’m politically responsible for everything, for successes and for failures.

“When people are telling us what they think of how the government was formed and what they think of our work during the first seven months of this parliament… then it is a clear signal that things can’t carry on as they are.

“The time has come to open a new chapter.”

Angela Merkel also made it clear she would not handpick her successor as party leader and would “accept any democratic decision taken by my party”.

However, Annegret Kramp-Karrenbauer would be the obvious choice for Merkel loyalists to replace her. She is currently the party secretary.

Health Minister Jens Spahn, a leading critic of Angela Merkel’s open-door migration policies, has also announced his candidacy.

Friedrich Merz, a former leader of the CDU-CSU parliamentary group and an old rival to Angela Merkel, has thrown his hat into the ring.

Angela Merkel’s CDU plunged 11 percentage points to 27% in October 28 elections in the central state of Hesse, according to preliminary results. This was the CDU’s worst showing in the state since 1966.

The SPD, which is in coalition with the CDU nationally, fell by a similar amount to 19.8%.

The main beneficiaries were the Greens, who paradoxically share power with the CDU in the state and have now drawn level with the SPD, and the far-right AfD, who rose to 13%.

The Hesse vote follows a pattern of losses for the two main parties, with the AfD doing particularly well in eastern states.

Two weeks ago, the CDU’s Bavarian ally, the CSU, lost its absolute majority in the state’s parliament which it has dominated since 1957. Like in Hesse, the SPD also lost badly and the Greens and AfD surged.

While the Greens appear to have benefited from the SPD’s slump in support, it seems clear that the centre-right has lost voters to the AfD.

Part of the reason could be anger at Angela Merkel’s decision to open Germany’s borders to large numbers of refugees, a move which the AfD has vehemently opposed.

Angela Merkel has been re-elected for a fourth term as Germany chancellor while nationalists have made a historic breakthrough in federal elections, exit polls suggest.

According to local reports, support for her conservative CDU/CSU alliance has dwindled, but the bloc will remain the largest in the parliament.

CDU/CSU’s current coalition partner, the social democratic SPD, says it will go into opposition following big losses.

The nationalist AfD is on track to become the third party.

The AfD’s performance, better than forecast in opinion polls, means the right-wing, anti-Islam party will have seats in the Bundestag for the first time.

Dozens of protesters have gathered outside the AfD’s headquarters in Berlin, some with placards saying “Refugees are welcome”.

While Angela Merkel’s alliance has remained the largest party, the numbers, if confirmed, are the worst result for the alliance between the Christian Democrat (CDU) and the Christian Social Union (CSU) under the chancellor’s leadership.

Addressing supporters, Angela Merkel, who has been in the job for 12 years, said she had hoped for a “better result”.

She added that she would listen to the “concerns, worries and anxieties” of voters of the Alternative for Germany (AfD) in order to win them back.

Image source Wikimedia

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Angela Merkel also said her government would have to deal with economic and security issues as well as addressing the root causes of migration – one of the main reasons behind the AfD’s result.

The chancellor is being punished for opening Germany’s door to almost 900,000 undocumented refugees and migrants.

The exit polls suggest the Social Democrats (SPD), led by Martin Schulz, have fallen to a new post-World War Two low. He said the result meant the end of the “grand coalition” with Angela Merkel’s alliance.

“It’s a difficult and bitter day for social democrats in Germany,” Martin Schulz told supporters.

“We haven’t reached our objective.”

With the possibility of an alliance with the SPD rejected, Angela Merkel’s options are narrow, and the process of forming a new coalition could take months.

The projections suggest that six parties will be in the German parliament for the first time since World War Two.

The most likely scenario is of a “Jamaica” coalition, so-called because of the colors of Jamaica’s flag. It includes the black CDU/CSU, the yellow, business-friendly Free Democrats (FDP) – who are returning to parliament after a four-year hiatus – and the Greens.

It is not a marriage made in heaven, as the Greens want to phase out 20 coal-fired power plants and the FDP disagree, but it is the only formation that would guarantee enough seats in the new Bundestag, German broadcaster ZDF says.

All parties have rejected working with the AfD.

The AfD has capitalized on a backlash against Angela Merkel’s policy towards migrants and refugees, many of them from war-torn, mainly Muslim countries like Syria.

The party’s program is heavily anti-immigrant, and particularly anti-Islam. It called for a ban on minarets and considered Islam incompatible with German culture.

Additionally, several of the AfD’s candidates have been linked to far-right remarks.

Prominent AfD figure Frauke Petry said on Twitter that Germany had experienced an incomparable “political earthquake”.

Polls have opened in Germany with Chancellor Angela Merkel vying for a third term in charge of Europe’s most powerful economy.

Angela Merkel’s Christian Democrats may take the largest number of seats in parliament, or Bundestag, according to latest polls.

But Angela Merkel’s coalition partners, the Free Democrats, may not gain the 5% vote share required to win any seats.

If so, Angela Merkel may have to consider a coalition with her main rival Peer Steinbrueck’s Social Democrats.

A coalition of Centre-Left, Left and Green parties is also a possibility.

Voting opened at 08:00 local time and is due to close at 16:00.

Elections in Germany are often followed by a period of several weeks of coalition talks before the final shape of the government emerges.

On Saturday, the main parties concluded their campaigns with large rallies.

Polls have opened in Germany with Chancellor Angela Merkel vying for a third term in charge of Europe's most powerful economy

Polls have opened in Germany with Chancellor Angela Merkel vying for a third term in charge of Europe’s most powerful economy

In Berlin, Angela Merkel asked for votes to continue with her government’s policies into 2017.

“I ask the people in Germany to give me a strong mandate so that I can continue to serve Germany for another four years, for a stronger Germany, a country which is well respected in Europe, which defends its interests but is also a friend of a lot of countries.”

In Frankfurt, Peer Steinbrueck – who leads the opposition SDP, told his supporters to believe in the possibility of victory.

“The voters decide, not commentary beforehand,” he said.

“It’s not a game. Don’t believe it’s decided yet – it isn’t. I would ask for the voters’ decision to be respected, because it’s them, not political polls or certain observers, who decide an election.”

The Green Party – who may play some part in an eventual governing coalition – has criticized Angela Merkel’s government for raising taxes.

The Free Democrats (FDP), whose best-known member is Foreign Minister Guido Westerwelle, has seen its fortunes decline sharply since the last election in 2009, when it won nearly 15% of the vote.

Analysts say the party, traditionally more liberal than the CDU/CSU, has struggled to stand out from its more powerful coalition partner on economic policy.

If the FDP do badly, as expected, the CDU/CSU may find themselves looking to other small parties to form a broader, more fragile coalition.

The election is one of the most important in years because of Germany’s dominant role in the eurozone.

With the biggest population of any EU state, Germany enjoys a GDP that far outstrips the economies of its partners and is crucial to decisions on tackling the eurozone’s debt crisis.

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President Barack Obama has used his public speech in Berlin to propose cuts of one-third in American and Russian nuclear arsenals.

Speaking at the Brandenburg Gate, Barack Obama called for reductions in the number of tactical warheads deployed in Europe.

The US president also pledged to boost efforts to close the Guantanamo Bay detention centre and tackle climate change.

Earlier, Barack Obama met Chancellor Angela Merkel, who criticized the broad scope of US surveillance programmes.

This is Barack Obama’s first visit to Berlin as American president.

His address to students and government officials at the Brandenburg Gate, which once divided East and West Germany, comes almost 50 years after President John F. Kennedy’s celebrated “Ich bin ein Berliner” speech.

In a speech which centred on a theme of freedoms, Barack Obama said the gate was a symbol that “no wall can stand against the yearnings for justice… that burn in the human heart”.

“Today’s threats are not as stark as they were half a century ago, but the struggle for freedom and security and human dignity, that struggle goes on,” he said.

“We may no longer live in fear of global annihilation but so long as nuclear weapons exist, we are not truly safe,” calling for intensified efforts to limit their spread.

Barack Obama said he had determined that the US could ensure its own and its allies security and maintain a credible deterrent “while reducing our deployed strategic nuclear weapons by up to one third”.

“I intend to seek negotiated cuts with Russia to move beyond Cold War nuclear postures,” he said.

Under the New Start treaty which the US signed with Russia in 2010, each side is allowed a maximum of 1,550 warheads and no more than 700 deployed launchers.

The new limit on delivery systems is less than half the ceiling of 1,600 specified in the original Start treaty from 1991.

Barack Obama spoke at Brandenburg Gate 50 years after JFK's "Ich bin ein Berliner" speech

Barack Obama spoke at Brandenburg Gate 50 years after JFK’s “Ich bin ein Berliner” speech

Barack Obama added that the US would also work alongside NATO allies to seek “bold reductions” in the use of tactical weapons in Europe, and would also seek to forge a new international framework for the use of peaceful nuclear power.

He said the US rejected the nuclearisation of countries like North Korea and Iran.

Shortly before Barack Obama spoke, Russian President Vladimir Putin was quoted as saying that Moscow “cannot allow the balance of the system of strategic deterrence to be disturbed or the effectiveness of our nuclear force to be decreased”.

A senior foreign policy adviser to Vladimir Putin said other nuclear-armed countries would have also have to reduce their stockpiles for such a plan to work.

“The situation now is not like in the 1960s and 1970s when only the United States and the Soviet Union held talks on reducing nuclear arms,” Yury Ushakov told a briefing in Moscow.

“Now we need to look more broadly… and increase the circle of participants in possible contacts on this matter.”

Barack Obama said that for the US, moving beyond the Cold War “mindset of perpetual war” also meant redoubling efforts to close the US prison camp at Guantanamo, tightly controlling the use of new technology like drones and “balancing the pursuit of security with the protection of privacy”.

In her morning meetings with Barack Obama, Chancellor Angela Merkel had criticized PRISM, the recently exposed US phone and internet surveillance programmes, saying: “We do see the need for gathering information, but there is a need for due diligence and proportionality.”

The chancellor grew up in Communist East Germany, where police surveillance was widespread.

Angela Merkel acknowledged that the internet “enables enemies of a free liberal order to use and abuse and bring threats to all of us”, but “an equitable balance must be struck”.

Barack Obama said the monitoring applied within narrow limits to do with national security. It had detected 50 potential threats and saved many lives, he emphasized.

“This is not a situation where we simply go into the internet and begin searching any way we want,” the US president told a news conference in Berlin.

Barack Obama’s visit comes after G8 leaders backed calls for holding Syrian peace talks in Geneva “as soon as possible”.

Speaking earlier, Barack Obama said the US was confident that the Syrian government had used chemical weapons during the 26-month-old conflict, but refused to spell out what aid might go the rebels.

“I cannot and will not comment on specifics on our programmes related to the Syrian opposition,” Barack Obama said, stressing his support for a political transition.

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EU leaders at Brussels summit say they are committed to tackling tax evasion and will push for global action to curb banking secrecy.

The president of the European Council, Herman Van Rompuy, said there was a “strong political will” in Europe to make tax systems fairer.

He said the EU would draft tougher rules this year on banking transparency. Herman Van Rompuy was speaking after summit talks in Brussels.

A key goal is to prevent multinational firms exploiting legal loopholes.

There is widespread public anger that some big corporations have minimized their tax payments at a time of economic hardship.

Tax evasion and avoidance cost EU states 1 trillion euros ($1.3 trillion) a year – more than was spent on healthcare in 2008.

The EU is now promising action against “aggressive tax planning” – that is, the complex yet legal accounting tricks used by some companies to minimize their tax payments.

EU leaders also want global standards on exchanging bank account data. The issue will be high on the agenda of a summit of the G8 industrialized nations in Northern Ireland next month.

Herman Van Rompuy said the economic crisis had injected new momentum into the debate on fair taxation. But he insisted that the EU was not seeking tax harmonization across Europe.

“It’s a real breakthrough… I am really convinced there is a strong political will by leaders not just on the European level, but on the global level, to tackle tax fraud,” he told a news conference.

Germany’s Chancellor Angela Merkel said that EU members Austria and Luxembourg – famous for their banking secrecy – agreed on the need for tax authorities to exchange information on private income. But “they attach great importance to also holding negotiations with third countries”, she added.

EU leaders at Brussels summit say they are committed to tackling tax evasion and will push for global action to curb banking secrecy

EU leaders at Brussels summit say they are committed to tackling tax evasion and will push for global action to curb banking secrecy

Switzerland, outside the EU, is a major competitor in the market for rich bank clients. Austria and Luxembourg want to ensure that Switzerland and other low-tax jurisdictions in Europe, such as Monaco and Liechtenstein, do not have an unfair advantage.

Austrian Chancellor Werner Faymann on Wednesday joined the call for a crackdown on tax evasion.

A European Parliament resolution on tax evasion on Tuesday urged the EU to halve the 1tn-euro annual losses by 2020, by curbing tax loopholes and havens.

The MEPs also called for a joint EU blacklist of tax havens.

The European Commission is pressing for automatic exchanges of people’s earnings data between tax authorities.

Some experts argue that business tax planning also reduces the revenue that developing country governments can collect, for example by shifting declared profits to countries where they are lightly taxed.

Politicians are keen to show voters that tax systems are fair, after a wave of unpopular budget cuts aimed at reducing deficits.

Starbucks and Amazon are among the companies that have faced tough questioning over their tax affairs recently.

And this week Apple came under fire in the US Congress over its low tax payments.

The other main theme at the Brussels talks was energy policy – especially the need to improve Europe’s energy infrastructure, develop renewables such as solar and wind power and remove barriers to competition. Much of Eastern Europe relies on Russia for gas – and in the past pricing disputes have led to supply shortages in mid-winter.

The Commission is urging EU governments to enact energy legislation that was agreed in 2011, warning that on current trends imports of gas will rise to 80% of the gas consumed in the EU by 2035.

The EU already imports 406 billion euros’ worth of oil, gas and coal annually – 3.2% of total EU economic output (GDP).

The fragmentation of Europe’s energy market makes it difficult to woo long-term investors willing to commit to multi-billion-euro infrastructure projects. The energy mix varies greatly across Europe, from nuclear-dominated France to coal-dependent Poland.

But a key goal is to connect Europe’s isolated “energy islands” – former Soviet bloc countries like Estonia and Bulgaria – to European grids and storage facilities.

The distortions in Europe’s energy market mean that Bulgarians – the EU’s poorest citizens – pay more for their electricity than consumers in the UK or Germany.

In the global economy the energy blockages threaten to put Europe at a serious disadvantage. The gas price index for EU households rose by 45% in 2005-12, compared with 3% in the US, while the figures for electricity were 22% and 8% respectively, the Commission says.

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German Interior Minister Hans-Peter Friedrich says his country will not allow Bulgaria or Romania to join the EU’s passport-free Schengen zone if the issue is put to a vote in the EU on Thursday.

“If Romania and Bulgaria insist on a vote, the attempt will fail because of a German veto,” Hans-Peter Friedrich said.

Both countries must take further steps to prevent migrants abusing the system, he told Germany’s Spiegel news website.

Bulgaria and Romania have sought Schengen entry since joining the EU in 2007.

Most EU countries, and some others including Switzerland and Norway, are in the Schengen zone, where border controls for those countries’ citizens are minimal or non-existent.

The UK and Republic of Ireland opted to stay out. In the UK, the governing Conservative Party is considering ways to limit immigration from Bulgaria and Romania when EU labor market restrictions are removed for the two countries next year.

German Interior Minister Hans-Peter Friedrich says his country will not allow Bulgaria or Romania to join the EU's passport-free Schengen zone

German Interior Minister Hans-Peter Friedrich says his country will not allow Bulgaria or Romania to join the EU’s passport-free Schengen zone

Schengen will be discussed by EU home affairs and justice ministers on Thursday.

Hans-Peter Friedrich said “the right of free movement gives all people in Europe the opportunity to come to another country for work, for education, but it’s not allowed to come only to Germany or Great Britain to get social security”. The minister is in the conservative Bavarian Christian Social Union (CSU), allied to Chancellor Angela Merkel.

“That’s the reason why we want to send people back, and this is what we have to regulate in our European law… There is no problem when people are coming to Germany for work, that’s what we want in Europe, but we don’t want people coming only to have social security,” he said.

The Netherlands has previously voted to delay the accession of Bulgaria and Romania to Schengen, arguing that both countries need to step up measures against corruption and organized crime.

German Education Minister Annette Schavan has resigned after Heinrich Heine University stripped her of her doctorate for plagiarism.

Duesseldorf’s Heinrich Heine University voted last Tuesday to remove her doctorate following a review.

Annette Schavan, a close ally of Chancellor Angela Merkel, had insisted she would fight the ruling and not resign.

In 2011, Defence Minister Karl-Theodor zu Guttenberg also quit after allegations he plagiarized his thesis.

German Education Minister Annette Schavan has resigned after Heinrich Heine University stripped her of her doctorate for plagiarism

German Education Minister Annette Schavan has resigned after Heinrich Heine University stripped her of her doctorate for plagiarism

Annette Schavan, 57, was awarded her doctorate 30 years ago, but the university found she had “systematically and intentionally” copied parts of it.

She had been scathing in her criticism of Karl-Theodor zu Guttenberg when the scandal of his plagiarism broke.

Analysts say her resignation will be hugely embarrassing to Angela Merkel.

Angela Merkel is facing federal elections on September 22.

Part of Annette Schavan’s brief as education minister is to oversee German universities.

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University of Duesseldorf in Germany has voted to strip Education Minister Annette Schavan of her doctorate after an investigation into plagiarism allegations.

The University of Duesseldorf’s philosophy faculty decided on Tuesday that she had carried out “a deliberate deception through plagiarism”.

Annette Schavan has denied the claims and said she will appeal.

An earlier plagiarism row brought an end to the political career of Germany’s defence minister in 2011.

Large parts of Karl-Theodor zu Guttenberg’s 2006 legal dissertations were found by Bayreuth University to have been copied and he stood down before it issued its damning verdict in May 2011.

Using the same words as Duesseldorf’s Heinrich Heine University, it concluded that he had “deliberately deceived”.

When Annette Schavan became the second minister in Chancellor Angela Merkel’s government to be accused of copying her doctorate, in this case by an anonymous blogger, she insisted she had never “knowingly falsely cited any sources” and promised to respond to the accusations.

But the faculty committee concluded that her work, which dealt with the formation of conscience, included a “substantial number of unaccredited direct quotes from other texts”.

In a statement declaring the doctorate invalid and withdrawing it from Annette Schavan, the faculty head Bruno Bleckmann said they had “decided by secret ballot, by 12 votes to two, with one abstention”.

University of Duesseldorf in Germany has voted to strip Education Minister Annette Schavan of her doctorate after an investigation into plagiarism allegations

University of Duesseldorf in Germany has voted to strip Education Minister Annette Schavan of her doctorate after an investigation into plagiarism allegations

Annette Schavan, 57, was said to be on a five-day education and science co-operation trip to South Africa. Education minister since 2005, Annette Schavan is described as a close colleague of Chancellor Angela Merkel.

Her lawyers reportedly rejected the university’s ruling and said Annette Schavan would appeal.

When the university announced its inquiry, Annette Schavan said she had no intention of standing down.

But the investigation into one of Chancellor Angela Merkel’s closest allies is seen as potentially awkward months before Germans vote in federal elections.

The popular German newspaper Bild said the news was a bitter blow to the chancellor, and wondered whether Angela Merkel would need to find a new education minister at the start of her election campaign.

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University of Duesseldorf is to investigate allegations that German Education Minister Annette Schavan plagiarized parts of her doctoral thesis in 1980.

The University of Duesseldorf has voted to back the inquiry into Annette Schavan’s philosophy thesis on the formation of conscience.

Annette Schavan has denied the claims first raised by an anonymous blogger.

But the investigation into one of Chancellor Angela Merkel’s closest allies is seen as potentially awkward months before federal elections.

Another plagiarism row in 2011 led to the resignation of Defence Minister Karl-Theodor zu Guttenberg, when it emerged that large parts of his doctoral thesis were copied.

Annette Schavan has told the Suedwest Presse newspaper she had no intention of resigning. Chancellor Angela Merkel’s spokesman said on Wednesday she had full confidence in the minister’s work.

University of Duesseldorf is to investigate allegations that German Education Minister Annette Schavan plagiarized parts of her doctoral thesis in 1980

University of Duesseldorf is to investigate allegations that German Education Minister Annette Schavan plagiarized parts of her doctoral thesis in 1980

An initial evaluation of Annette Schavan’s PhD thesis found questionable passages on 60 of its 351 pages, according to earlier media reports.

The minister told a German newspaper last year that she had never “knowingly falsely cited any sources and did not “attempt to mislead”.

The university’s doctoral board said it had to investigate the allegations “regardless of the person or her position”.

“The board has discussed the facts in detail and voted with a secret ballot by a score of 14-0 with one abstention to open a full investigation,” the university’s dean, Bruno Bleckmann, was quoted by Reuters news agency as saying.

The board is set to meet again on February 5.

Voters in the German state of Lower Saxony are going to the polls in a regional election seen as a bellwether for national elections later this year.

The state is currently controlled by German Chancellor Angela Merkel’s Christian Democrats (CDU) in coalition with the pro-market Free Democrats.

But opposition parties are hoping to make gains ahead of national elections in September.

Opinion polls suggested the race would be close.

David McAllister, the current leader of Lower Saxony’s government and close ally of Chancellor Merkel, will be hoping for re-election.

He was born in Berlin to a German mother and a Scottish father, and is seen as a possible successor to Chancellor Merkel as CDU leader.

But polls now put his CDU-led coalition neck-and-neck with the opposition Social Democrats (SPD).

The SPD have seen a previously comfortable lead over the incumbents evaporate as polling day approached.

The SDP leader in Lower Saxony, Stephan Weil, said a victory in the state polls would ensure that his party was taken seriously in September’s national elections.

David McAllister, the current leader of Lower Saxony's government and close ally of Chancellor Merkel, will be hoping for re-election

David McAllister, the current leader of Lower Saxony’s government and close ally of Chancellor Merkel, will be hoping for re-election

A CDU defeat in Lower Saxony would set alarm bells ringing for Angela Merkel, who is seeking a third term as chancellor in September.

Since Angela Merkel’s re-election as chancellor in 2009, the CDU has suffered set backs in recent state elections, and have lost power to the SDP and Greens in four other states.

There is also concern that the CDU’s coalition partners, the Free Democrats, will not win enough votes to maintain the coalition.

They require 5% of the vote to gain seats in the state legislature.

Angela Merkel has appeared several times on the campaign trail with David McAllister, who has played heavily on his Scottish roots.

Known as “Mac”, David McAllister has used bagpipes in his election broadcasts, and speaks English with a broad Scottish accent.

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European Union leaders have agreed on a roadmap for eurozone integration beyond the deal on centralized banking supervision, German Chancellor Angela Merkel said.

Specific dates have not yet been agreed for the phases of integration.

But the EU summit chairman, Herman Van Rompuy, said a deal should be reached next year on a joint resolution scheme for winding up failed banks.

Herman Van Rompuy’s far-reaching roadmap was the main topic of the two-day Brussels summit.

Speaking after the summit talks, French President Francois Hollande said: “There is no doubt today about the integrity of the eurozone – Europe cannot now be taken by surprise.”

But beyond the banking reforms, he said, Europe must address the problems of unemployment and feeble growth.

The deal to make the European Central Bank (ECB) the chief regulator should pave the way for direct recapitalization of struggling eurozone banks by the main bailout fund, the 500 billion-euro ($654 billion) European Stability Mechanism (ESM).

Spain is especially anxious to get that help for its debt-laden banks.

Direct recapitalization would help break the “vicious circle” in which bank debts have put a crippling burden on national budgets and led to massive taxpayer-funded bailouts.

However, Germany insists that the ESM should not be used to write off the existing “legacy” debts that have burdened Spain, Greece and the Republic of Ireland. Any ESM loans will be accompanied by tough rules on budget discipline.

At a late-night news conference, Angela Merkel said “we agreed a roadmap for the future development of the currency union and talked about different aspects of this that are important.

“Above all, it was important to define when we do what.”

Herman Van Rompuy aims to present detailed plans for deeper economic integration in time for the June 2013 EU summit. They would include “mutually agreed contracts for competitiveness and growth between governments and EU institutions”.

Much closer EU scrutiny of national budgets is envisaged, including penalties if governments rack up unsustainable debts.

Contractual agreements on things such as taxation and labor market policy are likely to require changes to the EU treaties – so these are likely to be put off until after the European elections in mid-2014.

The UK, along with Denmark, has a formal opt-out from joining the euro, and will not be part of the new banking union. But the UK’s banking pre-eminence in Europe means it is taking an intense interest in the negotiations.

New rules on prudent banking are seen as vital to bolster the euro, as bank failures triggered the financial crash.

Under the deal expected to take effect in March 2014, banks with more than 30 billion euros ($39 billion) in assets will be placed under ECB oversight.

The ECB would also be able to intervene with smaller lenders and borrowers at the first sign of trouble.

Speaking after the summit, Francois Hollande said Europe had been unprepared for the financial crisis but now had a “crisis management authority” which allowed for the “return of confidence and growth”.

The agreement on a financial transactions tax was, he told reporters, a good example of how countries could be brought into eurozone integration through closer co-operation, signing up to agreements at a later stage.

A non-eurozone country, Lithuania, joined the group adopting a financial transaction tax.

Eurozone integration – next steps

  • ECB      takes charge of bank supervision no later than March 2014
  • Joint scheme to wind down broken      banks, planned for launch in mid-2014
  • Joint deposit guarantee scheme,      to prevent bank runs
  • Main bailout fund – ESM – gets      power to recapitalize banks, under strict conditions
  • More centralized economic      governance, including enforceable “contracts” between      governments and EU Commission
  • Tighter co-ordination of national      budget targets

Eurozone banking deal

  • ECB      to act as chief supervisor of eurozone banks and lenders
  • ECB to co-operate closely with      national supervisory authorities
  • Direct oversight of banks with      assets greater than 30 billion euros ($39 billion) or with 20% of national      GDP
  • National supervisors to remain in      charge of other tasks
  • Non-eurozone countries that wish      to take part can make close co-operation arrangements

EU budget summit held in Brussels has ended without agreement on the 27-strong union’s next seven-year budget.

Another meeting will have to be called to sort out the difficulties but it is unclear how differences will be resolved.

European Council chief Herman Van Rompuy said he was confident a deal would be reached early next year.

Hours of talks failed to bridge big gaps between richer countries and those which rely most on EU funding.

The UK said current EU spending levels must be frozen.

The EU’s divisions are very clear and have become even more stark at a time of economic crisis.

Herman Van Rompuy had reshuffled the allocations in his original proposed budget during the summit, but he kept in place a spending ceiling of 973 billion euros ($1.2 trillion).

With the eurozone’s dominant states, Germany and France, unable to agree on the budget, UK Prime Minister David Cameron had warned against “unaffordable spending”.

The failure to decide on a budget came just days after the finance ministers of the 17 eurozone states failed to agree on conditions for releasing a new tranche of bailout money to Greece, raising questions about the union’s decision-making process.

Herman Van Rompuy’s budget had been unacceptable to a number of other countries, not just Britain, David Cameron told reporters.

“Together, we had a very clear message: <<We are not going to be tough on budgets at home just to come here and sign up to big increases in European spending>>,” he said.

“We haven’t got the deal we wanted but we’ve stopped what would have been an unacceptable deal,” he added.

“And in European terms I think that goes down as progress.”

EU budget summit held in Brussels has ended without agreement on the 27-strong union's next seven-year budget

EU budget summit held in Brussels has ended without agreement on the 27-strong union’s next seven-year budget

German Chancellor Angela Merkel said she was sympathetic towards David Cameron’s view – but no more than she was to all countries involved in the discussion.

“The discussions, both the bilateral discussions and the common discussion, have shown us that there is sufficient potential for an agreement,” she added.

French President Francois Hollande said the summit had made “progress”.

“There were no threats, no ultimatums,” he told reporters.

“Angela Merkel and I both agreed that it would be better to take some time out because we want there to be an agreement.”

Without naming the UK, he also said it was time the system of budget rebates was reconsidered.

“It is a paradox, because some net contributors [EU countries that pay in more than they get back] get some of the money back even though they are in a situation where they are wealthy enough for them not to get this money back,” Francois Hollande said.

Lithuanian President Dalia Grybauskaite remarked that the atmosphere at the summit had been “surprisingly good because the divergence in opinions was so large that there was nothing to argue about”.

European Commission chief Jose Manuel Barroso said the talks had failed owing to “important differences of opinion – especially in overall size of the budget”.

The Commission, which drafts EU laws, had originally called for a budget of 1.025 trillion euros.

Its position was supported by the European Parliament and many countries which are net beneficiaries, including Poland, Hungary and Spain.

While most EU members supported some increase in the budget, several, mostly the big net contributors, argued it was unacceptable at a time of austerity.

Germany, the UK, France and Italy are the biggest net contributors to the budget, which amounts to about 1% of the EU’s overall GDP.

Herman Van Rompuy’s revised budget would have softened the blow to the two main areas of spending: development in the EU’s poorer regions, and agriculture.

Instead, there would have been greater cuts to energy, transport, broadband and the EU’s foreign service.

His proposal, put to leaders on Thursday evening, would have made no change to the level of administrative costs – something the UK might have found unacceptable.

Speaking after the summit, Herman Van Rompuy said: “My feeling is that we can go further… It has to be balanced and well prepared, not in the mood of improvisation, because we are touching upon jobs, we are touching upon sensitive issues.”

Failure to agree on the budget by the end of next year would mean rolling over the 2013 budget into 2014 on a month-by-month basis, putting some long-term projects at risk.

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German Chancellor Angela Merkel says she doubts an agreement can be reached on the European Union’s 2014-2020 budget at the summit taking place in Brussels.

Angela Merkel spoke after negotiations on the 2014-2020 budget were adjourned until midday on Friday.

The opening of the summit was delayed for three hours because of stark differences over the budget plans.

Most EU members support an increase in the budget but several countries say it is unacceptable at a time of austerity.

Earlier, President of the European Council Herman Van Rompuy circulated a revised proposal for the new budget and said he believed that a compromise was possible.

“I think we’re advancing a bit, but I doubt that we will reach a deal,” Angela Merkel said.

She has previously said that another summit may be necessary early next year if no deal can be reached now.

French President Francois Hollande also cautioned that an agreement might not be possible.

But he added: “We should not consider that if we don’t get there tomorrow or the day after, all would be lost.”

German Chancellor Angela Merkel says she doubts an agreement can be reached on the European Union's 2014-2020 budget at the summit taking place in Brussels

German Chancellor Angela Merkel says she doubts an agreement can be reached on the European Union’s 2014-2020 budget at the summit taking place in Brussels

The 90-minute session late on Thursday followed a grueling day of face-to-face meetings between Herman Van Rompuy and each of the bloc’s leaders, followed by a flurry of backroom discussions.

Before suspending talks, leaders nominated Luxembourg’s Yves Mersch to the executive board of the European Central Bank.

The EU Commission, which drafts EU laws, has called for an increase of 4.8% on the 2007-2013 budget.

The UK is the most vocal of EU member states seeking cuts in the budget to match austerity programmes at home.

“No, I’m not happy at all,” Prime Minister David Cameron said about Herman Van Rompuy’s offer to cap spending at 973 billion euros ($1.2 trillion).

“Clearly, at a time when we’re making difficult decisions at home over public spending, it would be quite wrong – it is quite wrong – for there to be proposals for this increased extra spending in the EU.”

The statement called the rebate “fully justified”. The EU Commission and some EU governments want the rebate scrapped.

David Cameron has warned he may use his veto if other EU countries call for any rise in EU spending. The Netherlands and Sweden back his call for a freeze in spending, allowing for inflation.

Poland and its former-communist neighbors, which rely heavily on EU cash, want current spending maintained or raised.

Francois Hollande has also called for subsidies for farming and development programmes to be sustained for poorer nations.

France has traditionally been a big beneficiary of EU farm support.

Failure to agree on the budget would mean rolling over the 2013 budget into 2014 on a month-by-month basis, putting some long-term projects at risk.

Possible outcomes

  • deal after intense negotiations which may continue into the weekend
  • Failure to agree and a follow-up budget summit
  • If no agreement is reached by the end of 2013, the 2013 budget ceilings will be rolled over into 2014 with a 2% inflation adjustment, amid uncertainty over long-term EU projects

EU leaders are to begin talks on the bloc’s 2014-2020 budget, with many of them calling for cuts in line with the savings they are making nationally.

Countries that rely heavily on EU funding, including Poland and its ex-communist neighbors, want current spending levels maintained or raised.

The UK and some other net contributors say cuts have to be made. At stake are 973 billion euros ($1,245 billion).

The bargaining in Brussels will continue on Friday, or even longer.

The draft budget – officially called the 2014-2020 Multi-Annual Financial Framework (MFF) – was drawn up by European Council President Herman Van Rompuy, who made cuts to the European Commission’s original plan.

France objects to the proposed cuts in agriculture, while countries in Central and Eastern Europe oppose cuts to cohesion spending – that is, EU money that helps to improve infrastructure in poorer regions.

They are the biggest budget items. The Van Rompuy plan envisages 309.5 billion euros for cohesion (32% of total spending) and 364.5 billion euros for agriculture (37.5%).

The EU budget is a small fraction of what the 27 member states’ governments spend in total.

German Chancellor Angela Merkel says another summit may be necessary early next year if no deal can be reached in Brussels now.

In a speech to the European Parliament on Wednesday, the EU Commission President, Jose Manuel Barroso, complained: “No one is discussing the quality of investments, it’s all cut, cut, cut.”

Arriving in Brussels, UK Prime Minister David Cameron said: “These are very important negotiations.

“Clearly at a time when we are making difficult decisions at home over public spending it would be quite wrong, it is quite wrong, for there to be proposals for this increased extra spending in the EU.”

David Cameron, who was due to meet Jose Manuel Barroso and Herman Van Rompuy, has warned he may use his veto if other EU countries call for any rise in EU spending. The Netherlands and Sweden back his call for a freeze in spending, allowing for inflation.

Any of the 27 countries can veto a deal, and the European Parliament will also have to vote on the MFF even if a deal is reached.

Failure to agree would mean rolling over the 2013 budget into 2014 on a month-by-month basis, putting some long-term projects at risk.

If that were to happen it could leave David Cameron in a worse position, because the 2013 budget is bigger than the preceding years of the 2007-2013 MFF. So the UK government could end up with an EU budget higher than what it will accept now.

The European Commission says that the EU budget accounts for less than 2% of public spending EU-wide and that for every euro spent by the EU the national governments collectively spend 50 euros.

European Union leaders have agreed to set up a single eurozone banking supervisor – a major step towards a banking union.

A legislative framework is to be in place by January 1st 2013, with the body starting work later next year.

The European Central Bank-led mechanism will have the power to intervene in any bank within the eurozone.

The deal appears to be a compromise between France and Germany, who earlier disagreed over the timing and over the number of banks the ECB would oversee.

The timetable remains important, because only when the body is fully operational will the eurozone’s rescue fund inject cash directly into ailing banks – so important for countries like Spain.

The deal was, at best, an uneasy compromise between the French and Germans and much wrangling lies ahead.

France and the EU Commission wanted joint banking supervision, with the ECB in the lead role, to become operational in January 2013.

But German Chancellor Angela Merkel stressed that national budget discipline should be the priority.

Germany had been at odds with the European Commission over the scope of the proposed ECB supervision. Under the draft plan, all 6,000 banks in the 17-nation eurozone would be included – Germany wanted it limited to the biggest, “systemic” banks.

Previously, the German government has expressed a desire to retain supervisory responsibility within Germany over the country’s Landesbanks – state-owned banks that play a key role in the economies and state finances of Germany’s federal regions.

Announcing the result of talks early on Wednesday, European Council President Herman Van Rompuy said the 27 EU member states had agreed to set up – by the end of this year – “a Single Supervisory Mechanism [SSM], to prevent banking risks and cross-border contagion from emerging”.

“Once this is agreed, the SSM could probably be effectively operational in the course of 2013,” he said.

EU Commission President Jose Manuel Barroso said that the ECB “will be able to intervene if needed in any bank in the euro area”.

With new supervisory powers the ECB would be able to act early on to prevent a systemically dangerous accumulation of debt on a bank’s balance sheets.

And once the legal framework is in place the new permanent rescue fund, the European Stability Mechanism (ESM), will be able to recapitalize struggling banks directly, without adding to a country’s sovereign debt pile.

ECB supervision will not extend to the UK – Europe’s main financial centre, but outside the euro.

It is more than a theoretical possibility that the interests of the UK and City of London in shaping financial rules will be systematically ignored or overridden, he says.

Both Germany and France appeared to be claiming victory in the negotiations.

German Chancellor Angela Merkel said that the agreement was that “banks must be supervised in a differentiated way. That means that some will be direct… at the ECB level and others indirectly, via the national authorities.”

She also said that ECB President Mario Draghi had told her it would be a matter of some months before the ECB was ready to take on its new role.

Angela Merkel confirmed that the EU bailout funds would not be used to directly inject risk-absorbing capital into troubled eurozone banks until the new supervisory arrangements were in place.

A decision about how to recapitalize Spain’s banks will be made in the next couple of weeks, according to Jean-Claude Juncker, who chairs the Eurogroup of finance ministers.

French President Francois Hollande said there had been no discussion of a possible request by the Spanish government for a bailout of its own finances.

But he said “the worst is behind us”.

“We are on track to solve the problems that for too long have been paralyzing the eurozone and made it vulnerable,” Francois Hollande told a news conference.

EU leaders agreed that the ECB’s new bank supervisory responsibilities would be strictly separated from its role in setting monetary policy.

The banking union plan is fraught with legal complications, as it would give more powers to the ECB and possibly weaken those of national regulators.

There is speculation that it could lead to treaty changes – something that has caused big headaches for the EU in the past.

The UK wants safeguards to protect the powers of the Bank of England.

Jose Manuel Barroso said the arrangement would be “as inclusive as legally possible for non-euro members to join if they want to”.

Earlier, Angela Merkel called for the EU to be given the power to veto member states’ budgets. She said the EU economics commissioner should be given clear rights to intervene when national budgets violated the bloc’s rules.

 

Germany has called on countries using the euro to take decisive steps to bring about closer fiscal integration.

Berlin wants the EU’s 27 countries to consider pooling more economic sovereignty at a summit in Brussels which begins on Thursday.

French President Francois Hollande says an end to the eurozone crisis is “very close” and wants a deal agreed on the first stage of a banking union.

But Germany argues that the proposed deadline is unrealistic.

The proposal for a single banking regulator was agreed at the EU’s June summit.

But Berlin says there will be no final decision in Brussels because of concerns about plans for the regulator to supervise an estimated 6,000 banks across the eurozone.

Germany wants to continue regulating its financial institutions and is unhappy with a plan eventually to hand the European Central Bank full supervisory control.

Instead, German Finance Minister Wolfgang Schaeuble has proposed a more powerful role for the EU Economic and Monetary Commissioner in regulating national budgets. Chancellor Angela Merkel is understood to back his idea.

The commissioner should have the ability to veto a budget if it breaks deficit rules, the finance minister argues.

In setting out plans for full fiscal union, Wolfgang Schaeuble has set out a fairly ambitious negotiating position.

The finance minister’s plan would require a convention to be set up next year in order to change EU treaties, but many eurozone countries believe other priorities should be addressed first, our correspondent says.

“We are all taking part in this solidarity, not only the Germans,” Francois Hollande said in a newspaper interview.

European Commission President Jose Manuel Barroso warned on Wednesday that a lack of convergence towards a closer union was “nourishing populist debates ultimately to put an end to this project”.

“It is clear that the euro area needs to evolve to a fiscal union… and ultimately a political union,” Jose Manuel Barroso told the centre-right European People’s Party congress in Bucharest.

The Brussels summit will take place against a backdrop of calmer European stock markets than in previous meetings and less concern over the debt crises in Spain and Greece.

Although Greeks are set to hold a general strike on Thursday, the Athens government and its international creditors are said to have reached a deal on the austerity measures needed before the next bailout installment is handed over.

“I am confident we are doing everything we have to do in order to get it soon so that we can move towards recovery,” Greek PM Antonis Samaras said.

Although there is growing speculation that Spain will soon ask for eurozone help in tackling its debt crisis, Madrid has seen its borrowing costs fall and may not ask for any aid at all.

 

Chancellor Angela Merkel has pledged Germany’s continuing support to Greece, during her first visit to Athens since the eurozone crisis erupted nearly three years ago.

Angela Merkel said Greece had made good progress in dealing with its vast debt but that it was on a “difficult path”.

Thousands of people who blame Germany for forcing painful austerity measures on Greece are protesting in Athens.

Police have used teargas and stun grenades against demonstrators.

Correspondents say this highly symbolic visit is a show of support for Greece’s continued membership of the eurozone.

It comes as Greece prepares to pass new cuts of 13 billion euros ($17 billion) to qualify for more bailout cash, a policy that has sparked growing unrest.

While Germany has contributed the most money to the bailout, its chancellor is held responsible by many for demanding that Greece make swingeing cuts in exchange for the financing it has received.

Angela Merkel was met by Greek Prime Minister Antonis Samaras on arrival in Athens.

At a news conference after talks with Antonis Samaras and business leaders, Angela Merkel said the pace of reform in Greece had recently “picked up considerably” and that the country had “a good bit of the path” behind it.

“Much has been achieved but much needs to be done and Germany and Greece will continue to co-operate very closely together in this respect,” she said.

Angela Merkel acknowledged that there were “many people suffering in Greece” as a result of the financial crisis and austerity measures, but that the difficult path was necessary to ensure future generations could live in prosperity

Antonis Samaras said their meeting had been “dominated by frankness, mutual understanding, solidarity, a spirit of collaboration and a feeling that we can overcome the Greek problem, and obviously, the European problems alike”.

He said Greece was “determined to fulfill its obligations and overcome this crisis” and was determined to stay in the eurozone.

“The Greek people are bleeding right now, but they are determined to win the battle of competitiveness.”

Angela Merkel’s visit was a “token of proof” of the progress Greece has made, he said.

Athens is said to be carrying out its biggest security operation in a decade, with some 7,000 police on duty.

Protests have been banned for the day in much of central Athens, and within a 100 m radius of the route Angela Merkel’s motorcade will travel.

However, outside the lockdown zone, thousands of people gathered, some carrying banners with slogans such as “No to the Fourth Reich”.

A three-hour strike was also called for the early afternoon.

The crowds have largely been peaceful, though some protesters threw bottles, masonry and rocks towards police lines.

The situation in central Syntagma Square turned nasty, with police firing teargas and stun grenades against grounds of protesters.

Dozens of people have been detained.

Christina Vassilopoulou, a 37-year-old teacher taking part in the unrest, said she objected to “the decisions taken at European meetings where Merkel manipulates the participants”.

“I have a doctorate and I make 900 euros a month, 400 less than before. We have children that go hungry and most of the parents are unemployed,” she told AFP news agency.

Vana Koronaiou, a shop owner selling German-made handbags near Syntagma Square, told AFP Angela Merkel’s visit “pours oil on the fire”.

“If she wanted to help, she should have done it sooner,” she said.

But some Athens citizens were upbeat about the visit.

Constantinos Siathas told Associated Press: “I think most people, at least those who think and don’t act based on feelings or utopian ideas, are pleased and are expecting a lot from Angela Merkel’s visit.”

Earlier, a spokesperson for the leftist Syriza party, Yiannis Bournos, said people were “frustrated and enraged because they clearly understand that Mrs. Merkel’s visit is just a theatre play for the political support of a collapsing coalition”.

The trip is a gamble, chaos on the streets would only underline for the German public that Greece is a lost cause.

But the visit – Angela Merkel’s first to Greece in five years – is sending a symbolic message that she wants Greece to stay in the eurozone.

Speaking on Monday, Jean-Claude Juncker, chairman of the Eurogroup finance ministers of the eurozone, raised the pressure on Greece, calling on the government to demonstrate it could implement planned reforms “by 18 October at the latest” to qualify for the next bailout installment of 31.5 billion euros.

He was speaking as the eurozone’s new permanent fund to bail out struggling economies and banks was formally launched at the finance ministers’ meeting.

Meanwhile, the International Monetary Fund said on Monday that the global economic recovery was weakening, with government policies having failed to restore confidence.

It added that the risk of further deterioration in the economic outlook was “considerable” and had increased.

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France President Francois Hollande and German Chancellor Angela Merkel are marking the 50th anniversary of an historic speech seen as a key moment in the post-WWII reconciliation between the two countries.

Addressing an audience of young Germans in their own language in 1962, French President Charles de Gaulle said they were “children of a great nation which had made great errors”.

The meeting is to be largely ceremonial, German officials say.

Both countries are working together to address the current euro debt crisis.

Addressing an audience of young Germans in their own language in 1962, French President Charles de Gaulle said they were children of a great nation which had made great errors

Addressing an audience of young Germans in their own language in 1962, French President Charles de Gaulle said they were children of a great nation which had made great errors

Apart from the ceremonies, the two leaders were expected to discuss plans by EADS and BAE Systems to merge – creating the world’s largest aerospace and defence firm.

France’s finance minister says the planned deal needs close scrutiny raising fears of delays through political wrangling. Airbus maker EADS is anxious for stakeholders France and Germany to set out their position on the merger before an informal British deadline in October.

Chancellor Angela Merkel’s spokesman told journalists there would “of course be no decisions this Saturday” on that or any other issue.

Charles de Gaulle’s speech was seen as a highly significant moment, when France sought partnership with its erstwhile invader.

Now the Franco-German relationship is the core of the eurozone, even though when President Francois Hollande won power earlier this year, it did not seem to be at its strongest.

President Francois Hollande and Chancellor Angela Merkel had different policies on how to save the euro – the German leader had a more austere policy on public spending than he did.

He says they speak as one on insisting on strict conditions for bailouts.

Francois Hollande may have softened his belief that economies can be stimulated by government spending, and Angela Merkel may have softened her position on the European Central Bank being more willing to help struggling governments.

But issues remain, particularly over how fast to move towards a unified European banking system. Charles de Gaulle’ speech has led to a partnership but one where there are still rows.

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Greece’s Prime Minister Antonis Samaras is expected to repeat his plea for more time to implement reforms when he meets French President Francois Hollande.

The talks in Paris come a day after Antonis Samaras asked for his country to be given “breathing space” during talks with German Chancellor Angela Merkel.

Angela Merkel said she wanted Athens to remain in the eurozone but expected it to stick to the tough bailout terms.

The French leader is now likely to echo that message, correspondents say.

Angela Merkel and Francois Hollande met on Thursday to discuss Greece and urged Athens to stick with the tough reforms.

Greece’s Prime Minister Antonis Samaras is expected to repeat his plea for more time to implement reforms when he meets French President Francois Hollande

Greece’s Prime Minister Antonis Samaras is expected to repeat his plea for more time to implement reforms when he meets French President Francois Hollande

On Greece, the two leaders seem to be on the same page.

In Paris, Antonis Samaras is expected to call for more time to reduce the deficit, given the worse-than-expected recession and months lost this year due to elections, our correspondent says.

He adds that the Greek government is under pressure to win a concession from Europe so as to placate this tired nation and lessen the likelihood of a destabilizing period of social unrest.

After Friday’s talks with Angela Merkel in Berlin, Antonis Samaras said: “Greece will stick to its commitments and fulfill its obligations. In fact, this is already happening.

“We’re not asking for more money,” he said, adding that Greece needed “time to breathe”.

The International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission – the group of donor bodies known collectively as the “troika” – are examining whether Greece is making sufficient progress towards reforming its public finances.

Greece’s continued access to the bailout packages depends on a favorable report from the trio, and an official report is due to be released next month.

Greece is currently trying to finalize a package of 11.5 billion euros ($14.4 billion) of spending cuts over the next two years.

It is also being asked to put in place economic and structural reforms, including changes to the labor market and a renewed privatization drive.

The measures are needed to qualify for the next 33.5 billion-euro installment of its second 130 billion-euro bailout.

Greece needs the funds to make repayments on its debt burden. A default could result in the country leaving the euro.

Antonis Samaras is seeking an extension of up to two years for the necessary reforms, in order to provide Greece with the growth needed to improve its public finances.

 

 

EU leaders at Brussels summit have agreed to use the eurozone’s bailout fund to support struggling banks directly, without adding to government debt.

Speaking after 13 hours of talks in Brussels’, EU chief Herman van Rompuy also said a eurozone-wide supervisory body for banks would be created.

Officials said the plans could be finalized during July.

Analysts say Germany appears to have given ground after pressure from Spain and Italy to provide more support.

The two southern European countries had withheld support from an earlier plan to for a growth package worth 120 billion Euros ($149 billion).

They wanted measures to lower their borrowing costs.

Herman van Rompuy said the new proposals would break the “vicious circle” between banks and national governments.

Although Germany appears to have compromised, Chancellor Angela Merkel has managed to ensure that Brussels has more control over the finances of eurozone countries, something she had wanted.

The deal came about after new French President Francois Hollande appeared to throw his weight behind Italy and Spain.

“I’m here to try to find rapid solutions for those countries facing pressure from the market, despite having made huge efforts to balance their budgets,” the socialist French president said.

EU leaders at Brussels summit have agreed to use the eurozone's bailout fund to support struggling banks directly, without adding to government debt

EU leaders at Brussels summit have agreed to use the eurozone's bailout fund to support struggling banks directly, without adding to government debt

The new growth package, announced by Herman van Rompuy, is made up of:

• A 10 billion-euro boost of capital for the European Investment Bank, expected to raise overall lending capacity by 60 billion Euros

• Targeting 60 billion Euros of unused structural funds to help small enterprises and create youth employment

• A pilot launch of EU project bonds worth 4.5 billion Euros for infrastructure improvements, focusing on energy, transport and broadband.

In Brussels, both Italy and Spain were pushing the eurozone bloc to agree steps to reduce the interest rates the two countries have to pay.

Spanish 10-year government bonds were trading at yields above 6.9% on Thursday, coming close to the 7% considered unaffordable.

Spain’s Prime Minister Mariano Rajoy said debt sustainability was a pressing problem.

“We are paying rates that are too high to finance ourselves and there are many Spanish public institutions that cannot finance themselves.”

Spanish and Italian leaders are worried that their countries could soon – in effect – be shut out of international markets and forced to seek assistance.

Angela Merkel has warned there is no “magic formula” to solve the crisis.

Several EU leaders want individual countries’ debts guaranteed by the whole eurozone, for instance in the form of centrally issued eurobonds.

But Angela Merkel told the German parliament on Wednesday that eurobonds were “the wrong way” and “counter-productive”, adding: “We are working to breach the vicious circle of piling up debt and breaking [EU] rules.”

She said to loud applause: “Joint liability can only happen when sufficient controls are in place.”

Stronger competitiveness was the condition for sustained growth, the chancellor said.

Meanwhile, UK Prime Minister David Cameron said on his arrival at the summit that eurozone countries had some “hard decisions” to make.

When asked about plans for transferring more budgetary powers to the EU level, he said he shared “people’s concerns about Brussels getting too much power”.

European authorities have also unveiled proposals such as the creation of a European treasury, which would have powers over national budgets. The 10-year plan is designed to strengthen the eurozone and prevent future crises, but critics say it will not address current debt problems

 

EU leaders at Brussels summit are examining how to ease the eurozone debt crisis amid competing visions about how to revive the worst-hit economies.

As the Brussels summit opened, French President Francois Hollande made a new plea for EU solidarity and Spain warned that its borrowing costs were too high.

German Chancellor Angela Merkel scorned talk of pooling eurozone debt, saying it would require more budget rigor.

But there appears to be broad agreement on new measures to stimulate growth.

On arrival at the summit, UK Prime Minister David Cameron said “these are hard decisions for the eurozone countries to make and we should be encouraging them to go ahead”.

But when asked about plans for transferring more budgetary powers to the EU level David Cameron said: “I… in many ways share people’s concerns about Brussels getting too much power.”

European authorities have unveiled proposals such as the creation of a European treasury, which would have powers over national budgets.

The 10-year plan is designed to strengthen the eurozone and prevent future crises, but critics say it will not address current debt problems.

EU leaders at Brussels summit are examining how to ease the eurozone debt crisis amid competing visions about how to revive the worst-hit economies

EU leaders at Brussels summit are examining how to ease the eurozone debt crisis amid competing visions about how to revive the worst-hit economies

Spanish 10-year government bonds were trading at yields above 6.9% on Thursday morning, coming close to the 7% considered unaffordable.

Spain’s Prime Minister Mariano Rajoy said debt sustainability was a pressing problem.

“We are paying rates that are too high to finance ourselves and there are many Spanish public institutions that cannot finance themselves.”

Spanish and Italian leaders are worried that their countries could soon – in effect – be shut out of international markets and forced to seek assistance.

The debate about short-term fixes could become very bitter indeed.

Angela Merkel has warned there is no “magic formula” to solve the crisis.

Several EU leaders want individual countries’ debts guaranteed by the whole eurozone, for instance in the form of centrally issued eurobonds.

But Angela Merkel told the German parliament on Wednesday that eurobonds were “the wrong way” and “counter-productive”, adding: “We are working to breach the vicious circle of piling up debt and breaking [EU] rules.”

She said to loud applause: “Joint liability can only happen when sufficient controls are in place.”

Stronger competitiveness was the condition for sustained growth, the chancellor said.

Francois Hollande believes eurobonds should be a eurozone priority for helping countries like Italy and Spain bring their borrowing costs down.

But Angela Merkel continues to insist that before anything is done to increase the burden on German taxpayers, building blocks towards greater fiscal, banking and, eventually, political union must be put in place.

There is certainly a chance that the summit will take a small step on a path that would partly deal with the fundamental weaknesses in the eurozone.

But in the absence of major short-term action, he explains, borrowing costs for countries such as Spain and Italy are likely to remain painfully high, making the eurozone’s financial situation strained for a long time to come.

Angela Merkel said progress had been made on a pact for growth and she hoped European leaders would adopt a 130 billion-euro ($162 billion) stimulus package.

Francois Hollande, who was elected French president on an anti-austerity ticket, said on Thursday there were “points in common on growth”.

“Merkel has moved in the direction I wanted,” he told French TV channel France 2.

Adding that he and the German leader had also agreed on the financial transaction tax, he said they still needed to find agreement “on stability”.

“There are ongoing discussions, it’s normal,” he said.

“We need to act in support of the countries which need it: Spain and Italy.”

 

German Development Minister Dirk Niebel who sent home a big Afghan carpet free of charge aboard an intelligence service plane has drawn criticism from opposition politicians.

A spokesman for Minister Dirk Niebel says the customs duty required for the carpet will be paid.

Dirk Niebel bought the 30 kg (66-pound) carpet for himself in the Afghan capital Kabul, the Spiegel news website reports. It cost about $1,400.

Import duty was not paid when it arrived in Berlin last month.

German Development Minister Dirk Niebel who sent home a big Afghan carpet free of charge aboard an intelligence service plane has drawn criticism from opposition politicians

German Development Minister Dirk Niebel who sent home a big Afghan carpet free of charge aboard an intelligence service plane has drawn criticism from opposition politicians

The opposition Social Democrats (SPD) have demanded an explanation from the minister. He is a member of the liberal Free Democrats (FDP), junior coalition partners with Chancellor Angela Merkel’s conservative Christian Democrats.

Dirk Niebel had left the 9 sq m (97 sq ft) carpet at the German embassy because he could not get it on a scheduled flight. Then the German foreign intelligence service (BND) offered to fly it back to Berlin as a favor, German media report.

 

George Soros warns European leaders they have a “three-month window” to save the euro.

The billionaire investor said he believed Greece would elect a government willing to abide by loan conditions imposed by the EU in this month’s elections.

But George Soros said the German economy would begin in weaken in the autumn, making it much harder for Chancellor Angela Merkel to provide further support.

He said leaders did not understand “the nature of the crisis”.

George Soros also said that while European leaders were focusing on debt levels, the crisis was “more of a banking problem and a problem of competitiveness”.

George Soros warns European leaders they have a "three-month window" to save the euro

George Soros warns European leaders they have a "three-month window" to save the euro

For this reason, he said they had “applied the wrong remedy”.

“You cannot reduce the debt burden by shrinking the economy, only by growing your way out of it,” George Soros added.

George Soros, speaking at a conference in Italy, was referring to the drastic austerity measures that have been implemented across Europe, measures that are now being questioned by a growing number of politicians and commentators.

Without policies to boost growth, which would enable governments to raise revenue to pay down debt, George Soros said time was running out for the euro.

“I expect the Greek public will be sufficiently frightened by the prospect of expulsion from the EU that it will give a narrow majority of seats to a coalition that is ready to abide by the current [bailout] agreement,” he said.

However, this would provide only temporary respite, he warned, as the German public becomes less willing to continue bailing out its weaker European neighbors.

“The crisis is likely to come to a climax in the [autumn]. By that time, the German economy will also be weakening, so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities.

“That is what creates a three-month window.”

 

 

German Chancellor Angela Merkel has had telephone contact with Greece’s President Karolos Papoulias, amid continuing speculation that his country may have to leave the eurozone.

Greek officials said Chancellor Angela Merkel had suggested Greece could hold a referendum on the euro when it votes in national elections next month.

However, their German counterparts denied she had made such a proposal.

The crisis in the eurozone is expected to dominate G8 talks in the US this weekend.

The reports of the German-Greek contacts came as US and French leaders ended talks in Washington focusing on the economy.

In a telephone call with President Karolos Papoulias, Angela Merkel “conveyed thoughts about a vote parallel to the election with the question to what extent do the Greek citizens wish to remain within the eurozone,” said a statement from the office of Greece’s interim prime minister.

 

Greek officials said Chancellor Angela Merkel had suggested Greece could hold a referendum on the euro when it votes in national elections next month

Greek officials said Chancellor Angela Merkel had suggested Greece could hold a referendum on the euro when it votes in national elections next month

 

“However, it is clear that the matter is beyond the competence of the caretaker government,” the statement went on.

But a spokeswoman in Berlin said: “The information reported that the chancellor had suggested a referendum to the Greek President Karolos Papoulias is wrong.”

The caretaker government was sworn in this week after elections failed to produce a viable coalition to run the country.

New elections have been scheduled for 17 June.

The vote could result in a government that would refuse to implement the austerity measures that Greece’s last remaining international creditors are insisting on.

Speculation is increasing that Greece may have to leave the eurozone.

Meeting in Washington just before news broke of the German proposal, the US and French leaders said Greece should stay.

“We have the same conviction that Greece must remain in the eurozone,” France’s new President, Francois Hollande, said.

President Barack Obama said the situation in the eurozone was of great importance to the people of Europe and the whole world.

He said he looked forward to “fruitful” discussions with other G8 leaders, with a strong focus on economic growth.

Francois Hollande, who was elected president on 6 May, is also to have talks with British Prime Minister David Cameron.

David Cameron said that Greece must decide if it wants to remain in the euro.

“We need decisive action from eurozone countries in terms of strengthening eurozone banks, in terms of a strong eurozone firewall and decisive action over Greece. That has to be done.

“Clearly the Greeks have to make their minds up, they have to make their decision.”

Earlier, European Union Trade Commissioner Karel De Gucht said he European Central Bank and the European Commission are working on emergency scenarios in case Greece had to leave the single currency.

Several hours later, fellow commissioner Olli Rehn issued a statement saying that he is responsible for financial and economic affairs and relations with the ECB.

“We are not working on the scenario of a Greek exit,” he said.

 

France’s President Francois Hollande has arrived in Berlin for key talks with German Chancellor Angela Merkel, after his plane was apparently hit by lightning.

Presidential plane was forced to turn back to Paris and Francois Hollande later completed his journey on a second plane.

During his inauguration speech earlier in the day, Socialist Francois Hollande appealed for “a compromise” over the German-led focus on austerity.

He called for an emphasis on “growth”.

Describing the incident with the first plane, Francois Hollande’s spokesman said that the aircraft “could have been hit by lightning”, the AFP news agency reports.

“For security reasons, it turned back,” he said, adding that no-one was hurt.

It is very common for planes to be hit by lightning and most pilots will experience two strikes a year, some many more.

Planes are designed to dispel the electricity out through the wingtips, so that it is rare to have to turn back after a strike.

Francois Hollande's plane was apparently hit by lightning during his flight to Berlin

Francois Hollande's plane was apparently hit by lightning during his flight to Berlin

Analysts are watching to see how German Chancellor Angela Merkel and Francois Hollande can overcome their differences on how to resolve the crisis.

Stock markets and the euro have fallen amid continuing political uncertainty in Greece.

The chairman of the group of eurozone finance ministers, Jean-Claude Juncker, insisted on Monday that they would do “everything possible” to keep Greece in the euro.

Francois Hollande was sworn in for a five-year term at the Elysee Palace in Paris, becoming France’s first Socialist president in 17 years.

In his inauguration speech, Francois Hollande said he wished to deliver a “message of confidence”.

“My mandate is to bring France back to justice, open up a new path in Europe, contribute to world peace and preserve the planet.”

The new president said he was fully aware of challenges facing France, which he summarized as “huge debt, weak growth, reduced competitiveness, and a Europe that is struggling to emerge from a crisis”.

Francois Hollande also said he wanted other European leaders to sign a pact that “ties the necessary reduction of deficit to the indispensable stimulation of the economy”.

“I will tell them the necessity for our continent is to protect, in an unstable world, not only its values but its interests in the name of commercial exchange,” he added.

After the ceremonies, Francois Hollande named Jean-Marc Ayrault, leader of the Socialist group in parliament, as his prime minister.

Jean-Marc Ayrault, who is regarded as a Germanophile with good contacts in Berlin, had been widely tipped for the post.

Francois Hollande, 57, has spent the past week preparing to take up the presidency, and now the work begins in earnest.

Shortly after his swearing in, Francois Hollande left for Berlin to have dinner with Chancellor Angela Merkel, who said she would welcome the new leader “with open arms”.

But Angela Merkel’s embrace will hide some embarrassment after she openly supported Nicolas Sarkozy in the election battle.

“We don’t think the same on everything,” Francois Hollande acknowledged on French television on Monday.

“We’ll tell each other that so that together we can reach good compromises.”

Francois Hollande has demanded that a European fiscal pact that cracked down on overspending be renegotiated to include a greater emphasis on measures to stimulate growth, while Germany insists the treaty must be respected.

Whatever their differences, the crisis in the eurozone will put them under huge pressure to compromise, our correspondent says.

As the eurozone’s two biggest economies – and biggest contributors to its bailout funds – Germany and France are key decision-makers over the strategy supposed to pull Europe out of crisis.

According to official figures released on Tuesday morning, the French economy showed no growth in the first quarter of 2012. Growth in the final quarter of 2011 was also revised down to 0.1% from 0.2%.

However, Germany’s economy grew by a stronger than expected 0.5% in the first three months of the year.

Following his German trip, Francois Hollande will hold his first cabinet meeting on Thursday followed by a visit to Washington to meet US President Barack Obama on Friday.

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