Seven Days in Europe

All eyes are now on Italy rather than Greece with regard to the eurozone crisis. Markets reacted badly after Prime Minister Silvio Berlusconi announced his resignation on Tuesday evening. Market jitters only increased the following day after a document was leaked in which the European Commission questioned the country’s capacity to meet a balanced budget by 2013. The yield on Italian bonds shot through the roof on Wednesday, beyond the point at which Greece, Portugal and Ireland had been forced to seek financial aid. Italy’s rising borrowing costs have increased fears the country will need a bailout. In view of the uncertainty, David Cameron has said that Britain is preparing for “all eventualities” in the eurozone, including the breakup of the single currency. In a speech to business leaders in London, the prime minister warned: “Italy is the third largest country in the eurozone. Its current state is a clear and present danger to the eurozone and the moment of truth is approaching. If the leaders of the eurozone want to save their currency then they – together with the institutions of the eurozone – must act now. The longer the delay, the greater the danger.”

Italy has tried to dispel fears over its ability to meet its debts but to little avail. Italian PM Silvio Berlusconi will step down “within a few days”, the country’s president has said. Giorgio Napolitano said he wished to “dispel any doubt or misunderstanding” on when the prime minister would fulfil his promise to resign. He also said there would be no delay in passing economic reforms demanded by Italy’s eurozone partners. A spokesman for Angela Merkel said yesterday that Italy needed to convince its partners that it was serious about cutting its debts, telling a press conference in Berlin: “Italy has a debt problem. It must now re-establish trust …in the desire and ability to bring the country down the path of debt relief.”

Germany and France are reported to be in talks on a radical overhaul of the EU towards a more integrated eurozone.  A senior EU official told Reuters news agency “intense consultations” had been taking place “at all levels” and that a smaller eurozone was one possibility. French leader Nicolas Sarkozy is publicly advocating a fast-lane Europe for ‘core’ euro-countries. “In the end, clearly, there will be two European gears: one gear towards more integration in the euro zone and a gear that is more confederal in the European Union,” Sarkozy said during a discussion with students at Strasbourg University. German Chancellor Angela Merkel’s office denied plans to reduce the zone, saying Berlin aimed to “stabilise the eurozone in its entirety”. In contrast to Sarkozy, Jose Manuel Barroso, the president of the European commission, has said that the European Union must “unite or face irrelevance”. Barroso said a divided EU would no longer work. “The challenge is how to further deepen euro-area integration, without creating divisions with those who are not yet in it,” he said.

There were further fears for Greece this morning after an agreement on a Greek national unity government to be headed by the parliament’s speaker fell apart at the 11th hour, deepening the country’s political turmoil just weeks before the country is expected to run out of cash. However, Lucas Papademos has now been appointed to form a new coalition government.

While Italy and Greece battle with their budgets, it has been estimated that Germany has profited to the tune of €9 billion from the eurozone crisis over the past two years, an ING economist has calculated for EUobserver, as investors flock to “safe” but near zero interest rate bunds while southern euro-countries struggle with unsustainable rates.

Nick Clegg has urged Europe, and especially Germany, not to become embroiled in a kneejerk round of introspective renegotiations over EU treaties. Clegg said that would be a huge political distraction from the urgent task of making Europe more competitive. The Liberal Democrat leader said he supported German plans for greater financial surveillance, but added that it would be better to first see whether this could be achieved without time-consuming treaty changes. Speaking at prime minister’s questions, David Cameron again claimed that if treaty change was attempted he would try to negotiate the repatriation of powers in the British interest. Clegg warned: “The danger is that fixating on the treaties will obscure what is really needed.”

Finally, the devil’s face hidden for centuries has been revealed in a fresco by the Italian renaissance master Giotto. An Italian art historian, Chiara Frugoni, spotted the devil’s profile in the fresco’s clouds, high up in the Basilica of St Francis in Assisi. The face, with hooked nose and an evil smirk, is hard to see from the ground. The fresco, featuring the death of St Francis, dates from the 13th Century. Giotto di Bondone is seen as one of the finest Early Renaissance artists. Ms Frugoni said it was previously thought the first artist to conceal a portrait in clouds was Andrea Mantegna, in the 15th Century. His painting of St Sebastian, done in 1460, has a cloud from which a mysterious knight appears.

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