Berlin summit aims to solve euro crisis as it nears third year


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The problems of the eurozone persist in 2012, casting a persistent shadow over hopes for smoother sailing on the economic seas of 2012. Germany and France's respective heads of state - Chancellor Angela Merkel and President Nicolas Sarkozy - meet Monday in Berlin for the first bilateral summit of 2012 dedicated to solving the currency union's crisis.

The Financial Times , which is live-blogging the event, reports that the euro rose as the event kicked off, reaching its highest point against the U.S. in four days on forex markets.

The German chancellor stated that "We want Greece to remain in the euro region … the voluntary debt restructuring for Greece must be driven forward," according to the FT. Speculation has run rampant that Greece will be forced to exit the European Union and return to some kind of independent currency like the drachma. The upside would be that it could then set its own monetary policy, expanding liquidity and lowering interest rates to better compete in export markets. The downside, of course, would be massive capital flight as banks and investors try to escape a crashing new currency. Either way, the Greek people would suffer.

The main hope for the peripheral nations of the eurozone remains greater fiscal union - best represented by the idea of centrally-issued eurobonds - and strong support from the European Central Bank. That means it's a good sign that Merkel is opening up to the idea of the ECB taking more of a role in the European Financial Stability Facility, the body which administers the EU's bailout programs.

At the ECB, Bloomberg  reports that 2012 could bring more expansive financial policy, including lower interest rates, expanded balance sheets and possibly QE-style asset  buying from newly appointed president Mario Draghi.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: News Headlines , Bonds

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