German Chancellor Angela Merkel said the euro zone’s problems must be tackled at their root, telling a financial conference rules governing the single currency zone should be tightened.The euro slumped to a four-year low on Wednesday after a unilateral German move to ban naked short selling on some instruments exposed political divisions in Europe and stoked fears of tighter financial regulation.
Underscoring the splits within the European Union, France, still smarting from Germany’s failure to consult it on the ban, said it did not agree with Merkel’s comment on Wednesday that the euro was under threat. “I absolutely do not think that the euro is in danger,” French Economy Minister Christine Lagarde told RTL radio on Thursday. “The euro is a solid and credible currency.”
But Merkel, forced to ditch an electoral promise of 16 billion euros in tax cuts to fund the rescue packages, is under pressure at home after voters angered by the Greek debt crisis punished her coalition in a key regional vote. “The top priority is to restore confidence in the euro. This will only be achieved if the measures are supplemented by regulation and oversight. There is acute need for action,” German Finance Minister Wolfgang Schaeuble said.
Jean-Claude Juncker, chairman of the Eurogroup forum of euro zone finance ministers, said the weakness in the euro, down more than 7 percent against the dollar in the past month alone, was likely due to fears that economic growth in the 16 countries that share the currency will slow. “There is a certain reluctance to believe the Greeks can overcome the current crisis. I don’t think the markets are behaving in a rational way,” he told Reuters in Tokyo.
