Merkel says euro region is still ‘fragile’

German Chancellor Angela Merkel said turmoil in global markets caused by a Portuguese bank, underscores the euro region’s fragility and shows the need for governments to respect debt and deficit limits.

Merkel’s warning at a campaign rally of her Christian Democratic Union was a renewed message to France and Italy to refrain from softening euro-area rules, as she revived rhetoric reminiscent of the peak of Europe’s debt crisis.

While policy makers put “many rules” in place to prevent a repeat of the crisis, “if we now move away from those rules, for instance on the Stability and Growth Pact, on everything we’ve done to stabilise the euro, we could very quickly get into a situation where we start foundering,” Merkel said .

Banco Espirito Santo SA, Portugal’s second-biggest bank by market value, roiled markets on July 10 after a parent company missed payments on commercial paper. European stocks and Portuguese bonds rebounded after a selloff, while the bank’s long-term credit rating was lowered to B+ from BB- by Standard & Poor’s.

“The example of a Portuguese bank showed us in the last few days how quickly the so-called markets are roiled, how quickly uncertainty returns and how fragile the whole euro construction still is,” the German Chancellor said.

She didn’t mention Espirito Santo by name.

— Bloomberg


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