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Questions raised by analysts at the Peterson Institute for International Economics and the European Policy Center in Brussels, about the lack of leadership from Chancellor Merkel of Germany and EU leaders in addressing swiftly the crisis facing Greece and countries in southern Europe. Facing voter displeasure in Germany Merkel stalled in the hope of delaying adecision till after a regional election in Germay on May 9. In the process Merkel turned a smaller crisis in Greece into a crisis facing many countries in Europe including Spain, Portugal and Italy, and a crisis for the euro currency. French member of Parliament Juvin, told the French press: "are they waiting for the collapse of the euro?" One sticking point is that the Lisbon Treaty has no provisions for coordinating fiscal policies, and Germany did not insist earlier on oversight of Greek statistics which were generally known to be false since the 1990's. Another French member of the European Parliament, Le Grip, insisted on the need for a new European economic government, and the creation of new institutional responsibilites. The problem lies in the feeling in countries like Germany not to cede sovereignty on economic matters to a European economic body. ...

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A proposal to transfer debt in excess of 60% of GDP of all eurozone countries into a single fund to be paid off in 25 years is gaining attention in Germany. It is seen as finding acceptance with Germany's Constitutional Court. Angela Merkel, the German chancellor, says eurobonds are unconstitutional in Germany. Germany calls instead for greater European integration and transfer of powers from sovereign governments to a European banking supervisory authority. In early June 2012 discussions continued in Berlin between Manuel Barroso, president of the European Commission and Angela Merkel of Germany. The German position is summarized in the words of German finance minister Schauble, when he said that Germany could not hand over its credit card to other countries.

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Germany opposes aggressive buying of the bonds of Italy and Spain by the European Central Bank. Prime Minister Zapatero of Spain calls on the ECB to take action as Spanish bond yields reach 7% on Nov. 17, 2011. Germany sees the crisis as serving a constructive purpose as forcing the fiscally unstable countries to make changes.

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Michas points out that the first bailout loan was made to the Papandreou Greek government without getting the opposition to agree on the terms of the loan. This has led to the opposition parties using the austerity cuts to win public support and undermine the government, making it even harder to carry through the changes and spending cuts.

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New rules for euro currency nations in Sept. 2011. The rules provide for sanctions against countries with budget deficits exceeding 3% of GDP, and national debt exceeding 60% of GDP. Countries that break the rules will be required to make a cash deposit in a non-interest bearing account for an amount that is 0.2% of GDP. If the situation continues the deposit becomes a fine. The European Commission will still require finance ministers permission to impose sanctions, but the voting system makes this harder to block. The European Parliament will consider 6 pieces of legislation to make these changes.

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Landon Thomas looks at the European Financial Stability Facility, the organization that was formed in May 2010 to be the mechanism for raising and channeling funds to troubled eurozone economies Ireland, Greece and Portugal. He describes its evolution, its new responsibilities under the July 2011 eurozone agreement, and the difficulties it might face. The credibility of the EFSF is critical to the solution being worked out by eurozone leaders. The EFSF is based in Luxembourg and is headed by Klaus Regling, a German economist and a top official in the European Commisson's financial division. The EFSF raises funds in the financial markets. With Germany as the largest backer the EFSF is able to raise funds at low interest rates such as 3.3% for 10 years at one recent offering. The fund has a triple-A rating. In June and July the stability fund raised 8 billion euros in two auctions. It plans to come to the market four times during the rest of 2011 for funds to support Ireland and Portugal. The EFSF will need new powers and structure to meet its new role as the principal mechanism for solving the crisis. It is now given the role of the buyer of last resort for the bonds of troubled eurozone economies. This means national parliaments in the eurozone will have to approve these new powers and resources. One concern in financial markets is how the EFSF would deal with the needs of Italy or Spain if one of the two economies runs into trouble. Italy and Spain consitute 30% of the EFSF's backing, if they were to run into problems, would the burden fall disproportionately on France and Germany? And because France may have public finance problems of its own with declining competitiveness, does this mean Germany would be the real backer in that situation....

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Mario Monti, the new prime minister of Italy, is taking on one of Italy's toughest problems, a pervasive culture of tax evasion. The loss to the economy is not measured ony in terms of the loss of money to the Treasury, which one estimate puts at $340 billion a year. This burdens companies and the manufacturing sector with higher taxes and reduces investment in new plants, research and development, capital equipment, which would increase jobs. By encouraging this culture of tax evasion Berlusconi undercut and jeopardized his own plans to bring new economic growth to Italy. Berlusconi prevented allegations of false accounting against his companies by passing a law through parliament that made reduced penalties for false accounting. In Italy one saying goes that "only fools pay." In a country of 60 millon people only 394,000 people earn an income of more than $135,000 a year. "Evasion totale," referred to in newspapers in Italy is about total evasion by some owners of large property. One effort in parliament is to introduce legislation that would require the use of debit or credit cards, electronic transfer or other similiar methods of payment for amounts above a certain amount- with one of the amounts proposed being 100 euros. A recent poll by Demopolis showed that 73% of Italians polled want to see strong action to prevent tax evasion. This is also a strong reason why Monti, Draghi at the ECB, Bundesbank officials at Germany's central bank, and German chancellor Merkel, do not see the ECB's large scale buying of eurobonds by essentially printing money as a solution to eurozone debt problems- it puts off taking the neccessary and essential steps for reviving eurozone economies....

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The German and French positions on solutions to the eurozone debt crisis are in conflict. As a result the negotiations between France's Sarkozy and Germany's Merkel are deadlocked. The basic differences revolve around three basic issues. Germany wants to see a lasting solution in which Greece debt is restructured so that banks and other creditors that loaned money to Greece voluntarily take losses so that Greece's debt can be reduced to a sustainable level of no more than 50% of what it is now. France, the ECB and the French banks do not want to restructure Greek debt in this manner beyond the 21% reduction in value of debt under the July 2011 agreement. The voluntary reduction in Greek debt by the banks would prevent a default by Greece and unsettling of the financial markets. France fears market contagion from the restructuring of Greece debt that would place pressure on French banks as the value of the Greek, Spanish and Italian sovereign debt French banks hold declines in value. That would require a major recapitalization of French banks and additional cuts to the French budget. Additional twists to the negotiations are that Sarkozy is unpopular in France with elections six months away. For this reason Sarkozy would prefer to recapitalize after 9 months. A way to get around the need for more deficit cutting (austerity measures) in France, is for the European Financial Stability Fund to be able to borrow money from the European Central bank. The ECB can print euros in that situation. Germany's chancellor Merkel has to consider German public opinion and experts from the German central bank, who are adamantly against using the ECB to print money and Germany committing itself to bankrolling most of the effort. Germany wants France to use its own money to recapitalize French banks, with Germany only responsible for recapitalizing its banks. Merkel told her parliamentary caucus in Berlin that "the path is closed for using the European Central Bank to ease liquidity problems." Because of Germany's insistence on financial soundness for any solution, France being in the more difficult financial position and Sarkozy facing elections willing to come up with a short term fix, and the unwillingness of French and German banks to take the losses necessary for a lasting solution, the Germans see a real solution taking a long time. ...

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Charles Dallara, managing director of the Institute of International Finance, which represents large global banks, describes the deal that was reached by eurozone leaders for restructuring Greece's debt in July 2011. He was one of the key negotiators. He says the agreement helps prevent contagion to Spain and Italy, and helps increase confidence in banks. By showing the losses are better understood and seen as manageable conveys a message that builds confidence for the banks and for the EU. And the effort to create the conditions for growth in Greece will make all the difference, he says. The Institute of International Finance estimates the deal will cost the banks and other investors $54 billion. Dallara says the turning point in the talks came in mid-July when European governments agreed to a plan for banks to swap Greek debt for new securities, backed by collateral.The focus then shifted to shaping the details. Josef Ackermann, chief executive of Deutsche Bank and chairman of the International Finance Institute, used his skills to pull the package together with European leaders. Dallara has experience going back to his days working on the negotiations for the Brady deal for Latin American debt in the 1980's. The Brady deal was also designed around banks swapping the old bonds for new ones with longer maturities and reduction of principal, and lower interest rates. In return the banks were given guarantees of repayment removing uncertainty- through 30 year U.S. zero coupon bonds- and making it possible for banks to start anew. The reduction of principal in the July 2011 eurozone agreement is around 20%, the Brady reduction was much larger, around 30%. This suggests eurozone governments are putting up more of the funds in this situation with the weaker condition of banks which may need to be recapitalized at some point, and the preservation of the euro itself at stake....

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Polls after prime minister Papademos assumed office show nearly three fourths of Greeks see his appointment as a "positive" step for Greece. The popularity of the Socialist party of Papandreou has suffered the most in public opinion. One poll shows only 11% of Greeks would vote for the Socialist party, compared to 21% for the New Democracy party. The New Democracy party has widened its lead over the Socialists.

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The Christian Democrats (CDP) under Angela Merkel received only 23% of the vote in the 2011 Berlin elections. The Free Democrat party (FDP) with 2% of the vote did not reach the 5% threshhold for seats in the Berlin legislature. This was the fifth time the FDP failed to win enough votes to get seats in the regional parliaments. This endangers the CDP-FDP coalition. The FDP campaigned against Merkel's policy of financial support for Greece. The Social Democrats support the euro currency union and issuance of euro bonds, which suggests voters are not choosing parties based on opposition to bailouts of troubled European Union countries. The Social Democrats-Green coalition will have a majority in the state legislature, as the Greens won 18% of the vote. The Pirate party of internet free-speech activists and leftist voters dissatisfied with existing parties were expected to win 9% of the vote, which is a first for regional parliaments for a party of this type. Some of this vote could have increased the Greens vote....

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In this Agenda column Simon Nixon takes on the U.S. Treasury's criticism of Germany for its current account surplus of 7% of GDP in 2012, and not doing enough for the economies of southern Europe. The German government called it "incomprehensible." Nixon says it is better for the German economy to remain strong and to boost competitiveness and consumer spending in Spain, Portugal, Italy and Greece. He says the low eurozone inflation of annualized 0.7% for September 2013, which prompted the ECB to cut rates by 0.25%, is healthy to the extent that consumer prices are declining to adjust to a decline in wages. The reduction in labor costs is a way to restore lost competitiveness, just as Germany did in the last decade. The criticism is considered by many economists to be misdirected, and seen as "incomprehensible" by Germans, as Germans ask what would the U.S. have them do- provide stimulus when the government debt to GDP ratio is currently 82%, increase wages and how would this help Southern Europeans. Focussing on Germany's current account surplus says Nixon, is obscuring the larger issues of increasing consumer and business confidence and spending in the eurozone, and increasing bank lending. The new ECB bank resolution arrangements and other changes including deposit insurance if done right should help the recapitalization and restructuring needed for restoring bank lending to support recovery. Spain is furthest along in regaining competitiveness, with changes in Portugal, Italy and Greece also supporting a gradual return to growth....

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Italy's finance minister, Tremonti, met with Jiwei, chairman of the China Investment Corporation, China's sovereign wealth fund. Italy's is trying to persuade Chinese officials to authorize buying Italian government bonds. This would reduce pressures on Italy's borrowing rates in world financial markets.

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Greece defaulted on a loan payment to the IMF for 1.55 billion euros ($1.73 billion) on June 30, 2015.

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Unemployment in the eurozone drops to 7.7% in 2017. Unemployment in Spain drops to 17%.

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The WSJ Dollar Index tracks the U.S. dollar's performance against 16 other currencies. It surged by 12% in 2014 with a strengthening U.S. dollar. The rise in the dollar is likely to adversely affect the 15% of U.S. GNP that comes from exports and the $200 billion plus tourism industry in the U.S.

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The ratification of the European Union's Fiscal Treaty of Dec. 2011 will require a two thirds majority in both houses of parliament. The coalition government of Angela Merkel lacks such a majority. This means the support of the Social Democrats and the Greens party will be needed to pass the treaty in Germany. The Social Democrats parliamentary leader Frank-Walter Steinmeier, says he cannot "picture an approval of the pact without growth-boosting measures." The Merkel position of strict austerity policies in tackling the eurozone debt crisis has come under intense criticism for lack of growth boosting measures. Recent economic performance clearly in Greece and Portugal, and to some extent in Ireland, Spain and Italy, shows the decline in GDP with austerity cuts alone will worsen the deficits or lead to a prolonged period of economic stagnation.

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Germany is turning nationalistic in its approach to the debt crisis in Greece. This comes as Germans consider economic successes as Germany's, and failures in Europe, as the problems not of a united Europe but of these individual countries. The largest circulation German newspaper, Bild, suggested Greece sell the Acropolis to payoff creditors in the bond markets, and putting a estimate of $140 billion for this monument. A senior member of Merkel's party suggesting Greece sell off some of the Aegean islands. And a Bild poll showing a majority of Germans favor expelling Greece from the euro. There is not sufficient acknowledgement by German public opinion of the value to Germany of the export markets in Europe and the part they played in Germany's economic success.

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The IMF, ECB, and the EU, are requiring Greece to make cuts to private sector salaries by a reported 25% to bring Greece's wages more in line with a country like Portugal, because of the lower productivity of Greek workers and a way to make Greek goods more competitive. This is one way to accomplish what a devaluation of the drachma would have done when Greece was outside the eurozone. Greece's minimum wage is about $1000 a month- officials from the troika want to see this go down about $750 a month. The difficulty is that consumer prices are higher in Greece, with gasoline at $8 a gallon and other prices higher due to cartels that control the distribution of consumer goods in Greece. Other austerity measures required by the troika as a condition for further aid to Greece are pension cuts and higher taxes on businesses. Labor unions and business leaders pointed out other factors affecting Greece's competitiveness in a letter to prime minister Papademos as they opposed drastic wage cuts- the letter said " competitiveness is affected more by factors like bureaucracy- which is fed by complex regulation, state intervention, the tax system, corruption and antibusiness mentality rather than wage costs."...