EU and US Differ with Respect to Solutions for the Crisis

German Minister of Finance Wolfgang Schäuble intends to risk another attempt. After the implementation of a global tax on financial transactions wasn’t accepted last year, now he and his French colleague, François Baroin, want to introduce such a fee in the European sphere. The U.S. categorically rejected a tax on financial merchants, a position that was made clear through statements made by Treasury Secretary Timothy Geithner during a meeting with the European ministers in the Polish city of Wroclaw. “Even so, Europe should push on,” Schäuble stated on Saturday.

According to the minister, no one was surprised that Geithner didn’t spontaneously agree that this idea would lead to an immediate solution to the problem.

One thing is certain, Geithner affirmed, “The European block is working hard to implement these taxes.”* In October the Commission of the European Union will present the bill in question. British Minister of Finance George Osborne is highly skeptical of this type of tax, fearing a tremendous disadvantage for London as a financial center. The governments of Poland and Italy also expressed doubts on the issue.

The worst case scenario, Schäuble argued, is that only 17 euro zone countries adopt the new taxes, although he still does not want to retreat. The rates to be charged would bring money to the public sphere (e.g. money that was previously used to bail out banks and insurance companies). In addition, businesses that have high financial risk ought to be taxed in such a way, at least in the euro zone since it is not more worthwhile.

Greece Under Pressure

Serious talks also took place in Wroclaw involving the Greek Minister of Finance, Evangelos Venizelos. Schäuble made it clear that Greek finances still need significant improvement. If evaluators of the European Union, the Central European Bank and the International Monetary Fund cannot definitively provide a positive opinion by early October, the next bailout transfer to the country, which would amount to 8 billion euro, may not be released.

Jean Claude Juncker, chairman of euro zone finance ministers, told German news agency Deutsche Welle, that if evaluators of the E.U. verified that Greece does not meet the requirements, their share of aid money would be suspended.

“I think that speculating now about will happen is too premature,”* Juncker said.

None of the ministers present at the meeting wanted to issue concrete statements regarding the default in Greece. Schäuble affirmed that although Athens will not receive anything in October from the funding that was planned, there is no need for an emergency plan. After all, the country already received a confirmation of aid for 110 billion euro and still finds itself dependent on financial markets.

Warning from the European Central Bank

The heads of the European central banks also participated in the meetings. Among those present was Jens Weidmann, president of the Central German Bank, who was there for the first time. He has replaced Axel Weber, who left the post of bank president during early this year. Weidmann has also observed the situation through critical eyes, although now he is situated in a more diplomatic position.

He is against the involvement of the central banks in discharging public debts. Geithner wants to suggest that Europeans follow this same model, which is practiced in the United States. In Wroclaw, Weidmann also positioned himself against cyclical heating programs financed by the state.

The risk of the situation has increased significantly. This is due to the hesitancy in the financial markets, which is related to the public debt crisis in euro zone countries. Now the time has come to the regain the confidence of investors. “This will be accomplished through new programs for the economy, but more importantly, it will come through consolidating and strengthening that derives from the ability to compete,”* said Geithner.

European ministers in Wroclaw continue to push on without finding a solution for the capitalist crisis.

On the other hand, European Finance Ministers see the situations in Portugal and Ireland as optimistic. The two countries have implemented recovery plans quite different from those implemented by Greece, which have led the way to a much more favorable situation. Ireland and Portugal could receive 150 billion euro of stimulus from emergency European Financial Stability Facility funds.

The Bank Situation

President of the Central European Bank, Jean Claude Trichet, confirmed in Wroclaw that, once again, the most important central banks will have to help the other banks reach an agreement that will allow the injection of more capital into the financial markets. French and Italian banks will maintain public titles for European countries experiencing difficulties, but have come under pressure in the last few weeks. The banks will not render sufficient credit to each other due to a lack of general confidence. Nevertheless, Juncker says he does not see the European banking situation as critical.

After tests to measure stress among banks, I have reached the conclusion that the general situation of the banks is stable. “There are some banks that need to be recapitalized. But this is always bound to happen,”* Juncker told Deutsche Welle.

The stress test of European banks proved that eight financial institutions in Greece and Spain need capital injections. Through regular examination of the banks, the EU hopes to avoid triggering a downward spiraling crisis like that which occurred after Lehman Brothers’ failure almost three years ago.

During the beginning of October, ministers of finance throughout the E.U. will reconvene to discuss credit installments for Greece. The meeting in Wroclaw was prematurely interrupted because the Polish police were hesitant about their ability to maintain security of the ministers due to protests against European economic measures. European labor unions have called for a large demonstration in Wroclaw with up to 30,000 participants, which is expected to interfere with the ministers’ travel plans on their way home.

*Editor’s Note: This quote, accurately translated, could not be verified.