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| Citing Europe’s Progress, Merkel Urges Patience |
| Davos, 26.01.2012 |
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| DAVOS, Switzerland — Chancellor Angela Merkel of Germany said Wednesday that Europe had made more progress in dealing with the sovereign debt crisis than foreign investors acknowledged, as she toned down her usual calls for budgetary austerity.
“We are not going to resolve this with the wave of a magic wand,” Mrs. Merkel told an audience at the World Economic Forum made up largely of business people.
In a speech that seemed aimed at defusing criticism that Germany was bossing around the rest of Europe, Mrs. Merkel complained that progress made in countries like Ireland or Spain had not been appreciated. “A lot more has been done than we have seen in the past,” she said.
“It’s not only austerity measures,” she added, “but also structural reforms that lead to more jobs.”
She also portrayed the crisis as ultimately a result of Europe’s failure to become as dynamic as other regions.
“What has also been very clear is that we have weaknesses as regards our competitiveness,” she said. “We would have had to acknowledge these weaknesses at some point, but now we really have to deal with this.”
Europe is serious about opening up its labor market and taking other steps to improve growth, she said, but because it is a democracy, progress may be slow. “Please take the long, drawn-out practices with a degree of patience,” Mrs. Merkel said. “We will not become faint-hearted in pursuit of this project.”
Mrs. Merkel spoke on the same day that economic data showed that Germany was performing better than expected, in contrast to Britain, which may be slipping further into recession.
The Ifo Institute’s index of the German business climate rose more than some economists had predicted in January for a third consecutive month, with manufacturing and service industries doing better than expected. Sales at carmakers like Daimler and BMW jumped last year. SAP, the business management software maker, on Wednesday forecast higher earnings for this year.
The German data illustrated how companies in northern Europe had managed to at least partly insulate themselves from the debt crisis.
“Business is doing better than governments,” Pierre Nanterme, chief executive of the consulting firm Accenture, said during an interview in Davos. Large, global companies are less dependent on the European market, and in contrast to the financial crisis of 2008, they have had plenty of time to prepare for financial shocks, he said.
“The situation is extremely different from 2008,” Mr. Nanterme said.
Min Zhu, the deputy managing director of the International Monetary Fund, said during an interview in Davos that Europe’s sovereign debt crisis “remains serious” but that confidence was slowly being rebuilt in the region as political leaders erected firewalls around troubled countries and moved toward greater fiscal federalism.
“It’s becoming ever clearer that there is a way out if we work together,” he said. “I do see a light at the end of the tunnel.”
Still, Europe’s troubles are far from over, and the risks remain, he said. For one, growth in Europe is virtually stagnant as governments continue to cut spending to reduce deficits and debts, Mr. Zhu said.
“Austerity is hurting growth already,” he said. “We can’t only look at cutting debt. We need to see growth.”
Greece remains mired in problems, and international creditors are working on a controversial solution to lower its debt load. That situation “will take time to get back to normal,” he said.
And while investors have lowered the high interest rates they had been charging Italy and Spain, taking them out of a serious danger zone, a failure to stabilize the euro zone risks reversing that pattern, Mr. Zhu said. Meanwhile, if the Continent’s fragile banks pull back on credit to the economy, it would hit growth prospects more broadly.
“We’ve got to be very careful to stabilize Europe and the financial markets,” he said. “Bringing confidence back is so important.”
But many people at the Davos conference remain deeply pessimistic.
“That no one would drop out of the euro, or that the euro’s troubles are over — it would be unwise and preposterous to take that view,” Kenneth S. Rogoff, a professor at Harvard and a former chief economist at the International Monetary Fund, said during an interview.
With Greece on the brink of a default, a number of business leaders, economists and policy makers predicted that a breakup of the euro zone was still in the cards, beginning with the exit of Greece and possibly moving toward other weak countries like Portugal.
The investor George Soros even said that Greece might well be pushed out of the euro zone this year.
Mrs. Merkel was equally taken to task for having misdiagnosed the euro zone’s woes and insisting on a debilitating program of austerity that most attendees here fear would keep Europe’s currency bloc in a state of near stagnation for the better part of a decade.
Gerard Lyons, global chief economist and group head of research at Standard Chartered Bank, said at a luncheon that the E.M.U. — shorthand for the European Monetary Union — is now going to stand for “Even More Unemployment.”
Julia Werdigier contributed reporting from London.
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