Merkel says sovereign debt crisis won't be over for a year
German Chancellor Angela Merkel said the debt crisis won't be over in a year, urging Greece to hold to its programme of budget austerity and not "weaken resolve" to return to competitiveness.
The euro area faces "a crisis of confidence" that risks turning away investors as countries such as China and India strengthen, Ms Merkel said in a speech yesterday. "We're not going to get rid of that in a day, with one big bang, or in a year."
The chancellor, who heads Europe's biggest economy and the largest contributor to bailouts, said that deficit spending "won't work anymore" because it weakened Europe's global competitiveness. "We need to learn to live from what we earn," she added.
The euro had its biggest one-day gain in a year after Ms Merkel and fellow eurozone leaders emerged from a 10-hour summit in Brussels on Thursday clutching a plan to combat the debt crisis two years after it emerged in Greece.
Ms Merkel signalled that Ireland and Portugal can't expect similar treatment to Greece, saying that the Greek writedown would risk undermining investor confidence in European sovereign debt if not coupled with stricter conditions to cut its debt and deficit.
"So when we allow a restructuring, we have to do our utmost to keep other countries from coming and saying, 'We also want to have half of our debt wiped off the books'.
"That's why it was very important that the conditionality for Greece is very clear and that we agreed in Brussels that there is a permanent mission to Greece that looks at how Greece is implementing the conditions," Ms Merkel said.
The aim is "that the haircut for private investors doesn't weaken Greece's resolve in putting measures to improve competitiveness into practice".