Stocks Retreat as Spanish 10-Year Bond Yield Exceeds 7%
U.S. stocks fell for a third day as Spain’s 10-year debt yield topped 7 percent, fueling concern the debt crisis is worsening, and investors awaited the start of the earnings season. Corn and soybeans surged on forecasts for more dry U.S. weather. Treasuries rose.
The Standard & Poor’s 500 Index slipped 0.2 percent at 4 p.m. in New York and the Stoxx Europe 600 Index fell 0.4 percent. Ten-year Spanish yields jumped 11 basis points to 7.06 percent after rising as high as 7.108 percent. The euro climbed 0.2 percent to $1.2319, rebounding from a two-year low of $1.2251. Corn rose as much as 5.8 percent and soybeans jumped to a four-year high. Oil added 1.8 percent to $85.99 a barrel and natural gas rallied as a strike threatened supplies from Norway.
European finance ministers were gathering to work out crisis measures after leaders agreed last month to ease banks’ access to bailout funds. France and Germany sold six-month debt at negative yields amid demand for assets considered safe. Alcoa Inc. (AA) began the second-quarter U.S. earnings season after markets closed in New York, with analyst estimates compiled by Bloomberg predicting the first year-over-year profit decline for S&P 500 companies since 2009.
“It’s very concerning,” Jeff Savage, regional chief investment officer for Wells Fargo Private Bank in Portland, Oregon, said in a telephone interview. His firm manages $169 billion. “Seven percent is not a sustainable level of interest rates for Spain. That’s scary stuff. We can’t have one of our best trading partners going through terrible economic times and not having an effect on U.S. corporate earnings.”
Profit Drop
The S&P 500 dropped for a third day, the longest streak in more than a month, and closed at its lowest level since June 28. Alcoa, the biggest U.S. aluminum producer, rose 0.4 percent in the regular session and climbed another 0.3 percent in extended trading after the largest aluminum producer reported earnings and revenue that beat estimates following an increase in orders from the auto and aerospace industries.
Analyst estimates compiled by Bloomberg project a 1.8 percent decline in profit for S&P 500 companies in the second quarter, which would be the first year-over-year decrease since 2009. Revenue is projected to have increased 2.5 percent.
Earnings pessimism is reaching levels last seen during the global financial crisis of 2008 and 2009, based on company forecasts. Forty-four corporations issued profit projections that trailed analyst estimates during the 20 days through July 6, or 3.1 times the number of those that exceeded them. The ratio has been greater than 3 for five straight days and 17 of the last 20, the most in three years. It was at least that high the majority of the time between October 2008 and April 2009, climbing to 11.5 in December 2008, the data show.
Market Leaders
DuPont Co., Exxon Mobil Corp., Caterpillar Inc. and Bank of America Corp. fell at least 1.3 percent to lead losses in the Dow Jones Industrial Average. (INDU) Commodity and consumer- discretionary companies fell at least 0.5 percent to lead declines in eight of the 10 main industry groups in the S&P 500. Navistar International Corp., the maker of International brand trucks, fell 3.1 percent after Bloomberg Industries said truckmakers will need to reduce production in the second half of the year.
Visa Inc. and MasterCard Inc. fell at least 1.3 percent after being downgraded at UBS AG. Apple Inc. (AAPL), the biggest company by market value, rose 1.3 percent amid optimism about its smaller iPad tablet’s sales. Amerigroup Corp. (AGP) surged 38 percent after WellPoint Inc. (WLP), the second-biggest U.S. health plan, agreed to buy the company for $92 a share.
Ten-year U.S. Treasury yields slipped four basis points to 1.51 percent. Thirty-year rates lost four basis points to 2.62 percent.
European Markets
More than two shares fell for each that advanced in the Stoxx 600 (SXXP), which retreated for a fourth day. Metro AG, Germany’s biggest retailer, sank 6.3 percent to a three-year low as Chief Executive Officer Olaf Koch said restrained spending will have a “significant impact” on business. Michael Page International Plc lost 3.8 percent after the U.K. recruitment company reported a decline in gross profit. Hays Plc, the recruiter that finds workers for Siemens AG, sank 2.7 percent.
The euro recovered from its lows of the day after the European Commission said any future direct recapitalizations of banks by the European Stability Mechanism would not require guarantees by governments in countries that receive the aid.
The world’s most-accurate foreign-exchange strategists say the worst is over for the euro this year, putting them at odds with traders who see more pain.
Led by Wells Fargo & Co. and Westpac Banking Corp. -- which correctly called the euro’s weakness last quarter -- the five best firms as measured by Bloomberg expect Europe’s 17-nation common currency to end the year at about $1.26. That’s above the $1.24 median estimate in a survey of 55 strategists by Bloomberg News.
‘All Eyes’
A draft document to be discussed by finance ministers today showed that Spain will get an extra year to bring its budget deficit to 3 percent of gross domestic product, according to a Europa Press report. The deficit target for 2012 will be eased to 6.3 percent, Europa Press reported, with a target of 4.5 percent for 2013 and 2.8 percent in 2014.
Germany dismissed a rapid move toward direct bank recapitalization by the European rescue fund, limiting the tools for shoring up Spain’s banks as the euro-area debt crisis simmers. Finance Minister Wolfgang Schaeuble dismissed “false expectations” raised by euro leaders last month that the economically troubled euro zone would act quickly to unify the oversight of its banking system.
‘It’s Complicated’
“It will take time, it’s complicated, it isn’t easy to do,” Schaeuble told reporters before the finance ministers meeting.
“All eyes will be on the meeting of European finance ministers today to put a halt to the one-step-forward, two-step- backward discussions on the European sovereign debt crisis,” Jeroen van den Broek, a credit strategist at ING Bank NV in Amsterdam, wrote today in a report. “To distract investors a bit, Alcoa will kick off the second-quarter earnings season today. It is doubtful that earnings will give positive impetus.”
Yield Spread
The difference in yield investors demand to own Spanish 10- year bonds over benchmark German bunds climbed 11 basis points to 574 basis points, within 15 basis points of the June 18th record. Spanish 30-year bond yields increased three basis points to 7.29 percent, after rising to a euro-era record 7.327 percent.
German two-year note yields were at minus 0.003 percent from minus 0.010 percent on July 6. The government sold 3.29 billion euros ($4.04 billion) of six-month bills at a record-low yield of minus 0.0344 percent, according to a statement from the Bundesbank today.
France’s two-year rate increased five basis points to 0.25 percent. France sold 1.99 billion euros of six-month bills at a yield of minus 0.006 percent, the first time the nation agreed to a negative yield on the securities since Bloomberg began collecting the data in 1999.
The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed for a fourth day, rising 1.4 basis points to 285.
Limit Up
Corn surged as much as the 40-cent limit on the Chicago Board of Trade, advancing 5.8 percent to $7.33 a bushel, the highest since September. Soybean futures for November delivery increased 2.8 percent to $15.4775 a bushel and reached $15.7125, the highest since July 2008, amid the worst U.S. drought since Ronald Reagan was president.
The U.S. drought is withering the world’s largest corn crop, and the speed of the damage may spur the government to make a record cut in its July estimate for domestic inventories.
Tumbling yields will combine with the greatest-ever global demand to leave U.S. stockpiles on Sept. 1, 2013, at 1.216 billion bushels (30.89 million metric tons), according to the average of 31 analyst estimates compiled by Bloomberg. That’s 35 percent below the U.S. Department of Agriculture’s June 12 forecast, implying the biggest reduction since at least 1973.
In Asia, Chinese Prime Minister Wen Jiabao said the nation’s economy faces “relatively large” downward pressure. China’s inflation eased to a 29-month low, with the consumer price index rising 2.2 percent in June from a year earlier. Japan’s May machinery orders fell the most since 2001, while Hong Kong and Vietnam signaled growth may fall short of official forecasts.
The MSCI Emerging Markets Index lost 1.1 percent, declining for a fourth day. The Shanghai Composite Index slipped 2.4 percent. Benchmark gauges in South Korea, the Philippines, Thailand, Indonesia and Brazil dropped more than 1 percent. Egypt’s EGX 30 Index slumped 4.2 percent as President Mohamed Mursi reinstated parliament, reversing the military’s decision last month after a court ruling.
The Standard & Poor’s 500 Index slipped 0.2 percent at 4 p.m. in New York and the Stoxx Europe 600 Index fell 0.4 percent. Ten-year Spanish yields jumped 11 basis points to 7.06 percent after rising as high as 7.108 percent. The euro climbed 0.2 percent to $1.2319, rebounding from a two-year low of $1.2251. Corn rose as much as 5.8 percent and soybeans jumped to a four-year high. Oil added 1.8 percent to $85.99 a barrel and natural gas rallied as a strike threatened supplies from Norway.
European finance ministers were gathering to work out crisis measures after leaders agreed last month to ease banks’ access to bailout funds. France and Germany sold six-month debt at negative yields amid demand for assets considered safe. Alcoa Inc. (AA) began the second-quarter U.S. earnings season after markets closed in New York, with analyst estimates compiled by Bloomberg predicting the first year-over-year profit decline for S&P 500 companies since 2009.
“It’s very concerning,” Jeff Savage, regional chief investment officer for Wells Fargo Private Bank in Portland, Oregon, said in a telephone interview. His firm manages $169 billion. “Seven percent is not a sustainable level of interest rates for Spain. That’s scary stuff. We can’t have one of our best trading partners going through terrible economic times and not having an effect on U.S. corporate earnings.”
Profit Drop
The S&P 500 dropped for a third day, the longest streak in more than a month, and closed at its lowest level since June 28. Alcoa, the biggest U.S. aluminum producer, rose 0.4 percent in the regular session and climbed another 0.3 percent in extended trading after the largest aluminum producer reported earnings and revenue that beat estimates following an increase in orders from the auto and aerospace industries.
Analyst estimates compiled by Bloomberg project a 1.8 percent decline in profit for S&P 500 companies in the second quarter, which would be the first year-over-year decrease since 2009. Revenue is projected to have increased 2.5 percent.
Earnings pessimism is reaching levels last seen during the global financial crisis of 2008 and 2009, based on company forecasts. Forty-four corporations issued profit projections that trailed analyst estimates during the 20 days through July 6, or 3.1 times the number of those that exceeded them. The ratio has been greater than 3 for five straight days and 17 of the last 20, the most in three years. It was at least that high the majority of the time between October 2008 and April 2009, climbing to 11.5 in December 2008, the data show.
Market Leaders
DuPont Co., Exxon Mobil Corp., Caterpillar Inc. and Bank of America Corp. fell at least 1.3 percent to lead losses in the Dow Jones Industrial Average. (INDU) Commodity and consumer- discretionary companies fell at least 0.5 percent to lead declines in eight of the 10 main industry groups in the S&P 500. Navistar International Corp., the maker of International brand trucks, fell 3.1 percent after Bloomberg Industries said truckmakers will need to reduce production in the second half of the year.
Visa Inc. and MasterCard Inc. fell at least 1.3 percent after being downgraded at UBS AG. Apple Inc. (AAPL), the biggest company by market value, rose 1.3 percent amid optimism about its smaller iPad tablet’s sales. Amerigroup Corp. (AGP) surged 38 percent after WellPoint Inc. (WLP), the second-biggest U.S. health plan, agreed to buy the company for $92 a share.
Ten-year U.S. Treasury yields slipped four basis points to 1.51 percent. Thirty-year rates lost four basis points to 2.62 percent.
European Markets
More than two shares fell for each that advanced in the Stoxx 600 (SXXP), which retreated for a fourth day. Metro AG, Germany’s biggest retailer, sank 6.3 percent to a three-year low as Chief Executive Officer Olaf Koch said restrained spending will have a “significant impact” on business. Michael Page International Plc lost 3.8 percent after the U.K. recruitment company reported a decline in gross profit. Hays Plc, the recruiter that finds workers for Siemens AG, sank 2.7 percent.
The euro recovered from its lows of the day after the European Commission said any future direct recapitalizations of banks by the European Stability Mechanism would not require guarantees by governments in countries that receive the aid.
The world’s most-accurate foreign-exchange strategists say the worst is over for the euro this year, putting them at odds with traders who see more pain.
Led by Wells Fargo & Co. and Westpac Banking Corp. -- which correctly called the euro’s weakness last quarter -- the five best firms as measured by Bloomberg expect Europe’s 17-nation common currency to end the year at about $1.26. That’s above the $1.24 median estimate in a survey of 55 strategists by Bloomberg News.
‘All Eyes’
A draft document to be discussed by finance ministers today showed that Spain will get an extra year to bring its budget deficit to 3 percent of gross domestic product, according to a Europa Press report. The deficit target for 2012 will be eased to 6.3 percent, Europa Press reported, with a target of 4.5 percent for 2013 and 2.8 percent in 2014.
Germany dismissed a rapid move toward direct bank recapitalization by the European rescue fund, limiting the tools for shoring up Spain’s banks as the euro-area debt crisis simmers. Finance Minister Wolfgang Schaeuble dismissed “false expectations” raised by euro leaders last month that the economically troubled euro zone would act quickly to unify the oversight of its banking system.
‘It’s Complicated’
“It will take time, it’s complicated, it isn’t easy to do,” Schaeuble told reporters before the finance ministers meeting.
“All eyes will be on the meeting of European finance ministers today to put a halt to the one-step-forward, two-step- backward discussions on the European sovereign debt crisis,” Jeroen van den Broek, a credit strategist at ING Bank NV in Amsterdam, wrote today in a report. “To distract investors a bit, Alcoa will kick off the second-quarter earnings season today. It is doubtful that earnings will give positive impetus.”
Yield Spread
The difference in yield investors demand to own Spanish 10- year bonds over benchmark German bunds climbed 11 basis points to 574 basis points, within 15 basis points of the June 18th record. Spanish 30-year bond yields increased three basis points to 7.29 percent, after rising to a euro-era record 7.327 percent.
German two-year note yields were at minus 0.003 percent from minus 0.010 percent on July 6. The government sold 3.29 billion euros ($4.04 billion) of six-month bills at a record-low yield of minus 0.0344 percent, according to a statement from the Bundesbank today.
France’s two-year rate increased five basis points to 0.25 percent. France sold 1.99 billion euros of six-month bills at a yield of minus 0.006 percent, the first time the nation agreed to a negative yield on the securities since Bloomberg began collecting the data in 1999.
The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed for a fourth day, rising 1.4 basis points to 285.
Limit Up
Corn surged as much as the 40-cent limit on the Chicago Board of Trade, advancing 5.8 percent to $7.33 a bushel, the highest since September. Soybean futures for November delivery increased 2.8 percent to $15.4775 a bushel and reached $15.7125, the highest since July 2008, amid the worst U.S. drought since Ronald Reagan was president.
The U.S. drought is withering the world’s largest corn crop, and the speed of the damage may spur the government to make a record cut in its July estimate for domestic inventories.
Tumbling yields will combine with the greatest-ever global demand to leave U.S. stockpiles on Sept. 1, 2013, at 1.216 billion bushels (30.89 million metric tons), according to the average of 31 analyst estimates compiled by Bloomberg. That’s 35 percent below the U.S. Department of Agriculture’s June 12 forecast, implying the biggest reduction since at least 1973.
In Asia, Chinese Prime Minister Wen Jiabao said the nation’s economy faces “relatively large” downward pressure. China’s inflation eased to a 29-month low, with the consumer price index rising 2.2 percent in June from a year earlier. Japan’s May machinery orders fell the most since 2001, while Hong Kong and Vietnam signaled growth may fall short of official forecasts.
The MSCI Emerging Markets Index lost 1.1 percent, declining for a fourth day. The Shanghai Composite Index slipped 2.4 percent. Benchmark gauges in South Korea, the Philippines, Thailand, Indonesia and Brazil dropped more than 1 percent. Egypt’s EGX 30 Index slumped 4.2 percent as President Mohamed Mursi reinstated parliament, reversing the military’s decision last month after a court ruling.
Luxembourg’s Mersch Appointed to ECB Six-Member Executive Board
Luxembourg’s Yves Mersch, the euro region’s longest-serving central banker, was named to the European Central Bank’s Executive Board in a victory for German- style monetary rigor.
Mersch, 62, was appointed by euro-area finance ministers at a meeting in Brussels yesterday, Guy Schuller, a spokesman for Luxembourg Prime Minister Jean-Claude Juncker, told Bloomberg News. He will move into the slot vacated by Spain’s Jose Manuel Gonzalez-Paramo, stripping Spain of its claim to a permanent seat on the Frankfurt-based central bank’s six-member Executive Board. Juncker chairs meetings of euro finance chiefs.
After five months of wrangling, Mersch defeated a Spanish nominee, Antonio Sainz de Vicuna, head of legal services at the ECB, as well as Mitja Gaspari, former head of Slovenia’s central bank. As Luxembourg’s representative on the ECB’s wider policy- setting Governing Council, Mersch has earned a reputation as an inflation hawk. He is the only central banker in office continuously since the euro debuted in 1999.
“Mersch will do his bit to reinforce the reputation of the ECB as an inflation fighter,” said Christian Schulz, senior economist at Berenberg Bank in London. “That could make markets nervous at times.”
Rate Cut
The euro has fallen 4.7 percent against the dollar over the past two months as governments struggled to contain the region’s debt crisis and economic growth faltered. Mersch, who is head of Luxembourg’s central bank, said in a report on June 14 the euro- area economy probably contracted in the second quarter.
ECB President Mario Draghi signaled yesterday policy makers may be open to another interest-rate cut and said council members “will do everything to maintain price stability -- from both sides.” The central bank last week cut its benchmark interest rate by 25 basis points to 0.75 percent, a record.
With the ECB now run by Italy’s Draghi with Vitor Constancio of Portugal vice president, northern countries backed Luxembourg’s candidate as a way of arresting a perceived shift of power toward southern Europe.
Mersch “is extremely knowledgeable and highly respected,” ECB council member Ewald Nowotny, who is also head of Austria’s central bank, told reporters in Brussels. “I am very glad that finally this decision has been taken.”
Spain’s leverage to push through its lower-profile candidate was hampered by its pursuit at the same time of as much as 100 billion euros ($123 billion) in aid for its banks. Gonzalez-Paramo’s term ended on May 31.
Top Rated
Luxembourg, the European Union’s richest country in per capita terms, is one of four euro-zone countries to emerge from more than two years of fighting the debt crisis with its AAA credit rating intact.
Mersch’s arrival will leave two top-rated countries, Luxembourg and Germany, with board representation, while the remaining seats are held by Italy, Portugal, France and Belgium. The six board members are joined by the 17 heads of national central banks to set interest rates.
Before Mersch can begin his term, all 27 EU governments must sign off on his appointment and the European Parliament will hold a hearing and non-binding vote. The parliament has no power to block ECB appointments and has never issued a negative recommendation. Euro-region leaders will give the final nod.
The appointment is part of a personnel package that includes new leaders for the panel of euro-area finance ministers and the euro’s permanent rescue fund.
Mersch, 62, was appointed by euro-area finance ministers at a meeting in Brussels yesterday, Guy Schuller, a spokesman for Luxembourg Prime Minister Jean-Claude Juncker, told Bloomberg News. He will move into the slot vacated by Spain’s Jose Manuel Gonzalez-Paramo, stripping Spain of its claim to a permanent seat on the Frankfurt-based central bank’s six-member Executive Board. Juncker chairs meetings of euro finance chiefs.
After five months of wrangling, Mersch defeated a Spanish nominee, Antonio Sainz de Vicuna, head of legal services at the ECB, as well as Mitja Gaspari, former head of Slovenia’s central bank. As Luxembourg’s representative on the ECB’s wider policy- setting Governing Council, Mersch has earned a reputation as an inflation hawk. He is the only central banker in office continuously since the euro debuted in 1999.
“Mersch will do his bit to reinforce the reputation of the ECB as an inflation fighter,” said Christian Schulz, senior economist at Berenberg Bank in London. “That could make markets nervous at times.”
Rate Cut
The euro has fallen 4.7 percent against the dollar over the past two months as governments struggled to contain the region’s debt crisis and economic growth faltered. Mersch, who is head of Luxembourg’s central bank, said in a report on June 14 the euro- area economy probably contracted in the second quarter.
ECB President Mario Draghi signaled yesterday policy makers may be open to another interest-rate cut and said council members “will do everything to maintain price stability -- from both sides.” The central bank last week cut its benchmark interest rate by 25 basis points to 0.75 percent, a record.
With the ECB now run by Italy’s Draghi with Vitor Constancio of Portugal vice president, northern countries backed Luxembourg’s candidate as a way of arresting a perceived shift of power toward southern Europe.
Mersch “is extremely knowledgeable and highly respected,” ECB council member Ewald Nowotny, who is also head of Austria’s central bank, told reporters in Brussels. “I am very glad that finally this decision has been taken.”
Spain’s leverage to push through its lower-profile candidate was hampered by its pursuit at the same time of as much as 100 billion euros ($123 billion) in aid for its banks. Gonzalez-Paramo’s term ended on May 31.
Top Rated
Luxembourg, the European Union’s richest country in per capita terms, is one of four euro-zone countries to emerge from more than two years of fighting the debt crisis with its AAA credit rating intact.
Mersch’s arrival will leave two top-rated countries, Luxembourg and Germany, with board representation, while the remaining seats are held by Italy, Portugal, France and Belgium. The six board members are joined by the 17 heads of national central banks to set interest rates.
Before Mersch can begin his term, all 27 EU governments must sign off on his appointment and the European Parliament will hold a hearing and non-binding vote. The parliament has no power to block ECB appointments and has never issued a negative recommendation. Euro-region leaders will give the final nod.
The appointment is part of a personnel package that includes new leaders for the panel of euro-area finance ministers and the euro’s permanent rescue fund.
German court hears complaints on euro crisis tools
Germany's top court will address on Tuesday whether Europe's new bailout scheme and budget rules are compatible with national law in a process influencing not just how to tackle the euro zone debt crisis, but how much deeper European integration can go.
Finance Minister Wolfgang Schaeuble and German central bank chief Jens Weidmann will attend the German Constitutional Court's public hearing (0800 GMT) into complaints about the European Stability Mechanism (ESM) and fiscal pact.
Apart from airing the arguments of eurosceptic politicians, academics and businesses, and the government view that the measures to tackle the euro zone crisis got legitimacy from parliament's approval in June, the hearing may indicate how long the court will keep Europe on tenterhooks.
Anything more than a few weeks would mean a serious delay to implementing the ESM, which has already been postponed from July 1, and raise serious doubts about whether Europe will really get the extra firepower it needs to combat the crisis.
The 16 judges in the southwestern city of Karlsruhe have a reputation of being a stone in the shoe of European integration, especially after they held up the Lisbon Treaty updating the European Union's constitution in 2009 to defend the role of the German Bundestag (lower house).
"The Bundestag must remain at the center of political decisions, especially regarding its core competences such as responsibility for the federal budget," former Constitutional Court judge Udo di Fabio told news weekly Der Spiegel's Monday edition.
The court has chided Chancellor Angela Merkel's government repeatedly on this point since the sovereign debt crisis began just over two years ago, though it has never actually rejected any bailout itself - for Greece or other euro zone countries - as unlawful.
Court president Andreas Vosskuhle, who heads the eight-judge "senate" handling the ESM/fiscal pact case, has called this the "red line" running through all of the court's decisions on Europe.
Amid reports that Merkel is growing impatient with the court after taking on board its warnings to consult the Bundestag more fully, Germany's head of state said he supported the plaintiffs' rights to test euro crisis measures in court.
President Joachim Gauck - whose signature is needed to make ratification complete - made a rare incursion into the euro debate by saying he was "glad that this action is being taken".
SWALLOWING THE MYTH
Gauck, who was nominated by the opposition, told German TV the center-right chancellor was "obliged to describe in detail the meaning, in fiscal terms too" of the debt crisis measures.
"Sometimes it's tiresome to explain what it's all about. And sometimes the energy is lacking to tell the population openly what is really going on," the popular president said on Sunday.
The main opposition Social Democrats (SPD) leant their votes on the permanent bailout mechanism and fiscal pact in return for growth and job measures. SPD chief Sigmar Gabriel was confident they were "in tune with the constitution", but echoed a widely-held feeling that any further steps to integration would require a referendum - a view the court in Karlsruhe might also express.
Merkel favors greater fiscal and political union providing Europe gets strong enough institutions to ensure that the errors that led to the sovereign debt crisis are avoided in future.
Constitutional Court president Vosskuhle is an avowed fan of a "federal Europe". But his former colleague Di Fabio said the currency bloc was in no shape for such projects now and that any federal state launched in such conditions would be "stillborn".
He questioned why so many politicians are talking about a plebiscite on a constitution dating from 1949 and defended by the court in Karlsruhe since 1951 which was designed to limit chancellors' power and prevent a return to Nazi-style tyranny.
"Perhaps many people are talking about a new constitution because they fear a Constitutional Court veto," he said. "Many swallow the myth that Karlsruhe is against more integration."
A surprising number of Germans express support for ceding more sovereignty.
They are set for a showdown with an increasingly vocal band of eurosceptics in Merkel's coalition and beyond, who are upset at what they see as concessions to Italy and Spain at the last EU summit on support for their banks and debt.
Finance Minister Wolfgang Schaeuble and German central bank chief Jens Weidmann will attend the German Constitutional Court's public hearing (0800 GMT) into complaints about the European Stability Mechanism (ESM) and fiscal pact.
Apart from airing the arguments of eurosceptic politicians, academics and businesses, and the government view that the measures to tackle the euro zone crisis got legitimacy from parliament's approval in June, the hearing may indicate how long the court will keep Europe on tenterhooks.
Anything more than a few weeks would mean a serious delay to implementing the ESM, which has already been postponed from July 1, and raise serious doubts about whether Europe will really get the extra firepower it needs to combat the crisis.
The 16 judges in the southwestern city of Karlsruhe have a reputation of being a stone in the shoe of European integration, especially after they held up the Lisbon Treaty updating the European Union's constitution in 2009 to defend the role of the German Bundestag (lower house).
"The Bundestag must remain at the center of political decisions, especially regarding its core competences such as responsibility for the federal budget," former Constitutional Court judge Udo di Fabio told news weekly Der Spiegel's Monday edition.
The court has chided Chancellor Angela Merkel's government repeatedly on this point since the sovereign debt crisis began just over two years ago, though it has never actually rejected any bailout itself - for Greece or other euro zone countries - as unlawful.
Court president Andreas Vosskuhle, who heads the eight-judge "senate" handling the ESM/fiscal pact case, has called this the "red line" running through all of the court's decisions on Europe.
Amid reports that Merkel is growing impatient with the court after taking on board its warnings to consult the Bundestag more fully, Germany's head of state said he supported the plaintiffs' rights to test euro crisis measures in court.
President Joachim Gauck - whose signature is needed to make ratification complete - made a rare incursion into the euro debate by saying he was "glad that this action is being taken".
SWALLOWING THE MYTH
Gauck, who was nominated by the opposition, told German TV the center-right chancellor was "obliged to describe in detail the meaning, in fiscal terms too" of the debt crisis measures.
"Sometimes it's tiresome to explain what it's all about. And sometimes the energy is lacking to tell the population openly what is really going on," the popular president said on Sunday.
The main opposition Social Democrats (SPD) leant their votes on the permanent bailout mechanism and fiscal pact in return for growth and job measures. SPD chief Sigmar Gabriel was confident they were "in tune with the constitution", but echoed a widely-held feeling that any further steps to integration would require a referendum - a view the court in Karlsruhe might also express.
Merkel favors greater fiscal and political union providing Europe gets strong enough institutions to ensure that the errors that led to the sovereign debt crisis are avoided in future.
Constitutional Court president Vosskuhle is an avowed fan of a "federal Europe". But his former colleague Di Fabio said the currency bloc was in no shape for such projects now and that any federal state launched in such conditions would be "stillborn".
He questioned why so many politicians are talking about a plebiscite on a constitution dating from 1949 and defended by the court in Karlsruhe since 1951 which was designed to limit chancellors' power and prevent a return to Nazi-style tyranny.
"Perhaps many people are talking about a new constitution because they fear a Constitutional Court veto," he said. "Many swallow the myth that Karlsruhe is against more integration."
A surprising number of Germans express support for ceding more sovereignty.
They are set for a showdown with an increasingly vocal band of eurosceptics in Merkel's coalition and beyond, who are upset at what they see as concessions to Italy and Spain at the last EU summit on support for their banks and debt.
Euro zone finance ministers' meeting
Euro zone finance ministers met in Brussels to discuss support for Spanish banks and using the bloc's rescue funds to stabilize bond markets.
Following are excerpts from the Eurogroup statement and comments by ministers and officials after the talks:
EUROGROUP STATEMENT
ON SUPPORT FOR SPAIN FROM EFSF AND ESM BAILOUT FUNDS:
"The Eurogroup has today reached a political understanding on the draft memorandum of understanding underlying the financial assistance for the recapitalization of financial institutions for Spain, to be provided via the EFSF until the ESM becomes available and then transferred to the ESM without gaining seniority status."
"The Eurogroup envisages providing the final approval of the programme by July 20, after national procedures have been completed."
ON EXTENSION TO SPAIN'S BUDGET TARGET:
"The Eurogroup supports the recently adopted Commission recommendation to extend the deadline for the correction of the excessive deficit in Spain by one year to 2014.
ON BANK RECAPITALISATION:
"In order to break the vicious circle between banks and sovereigns, technical discussions on the future ESM direct bank recapitalization instrument will also start in September so that the ESM could, following a regular decision, have the possibility to recapitalize banks directly, once an effective single supervisory mechanism is established."
EFSF HEAD KLAUS REGLING
ON INTERVENTION IN PRIMARY BOND MARKETS:
"This was not discussed today, but the instrument is available as you know under the EFSF. The guidelines for primary market interventions were approved already last year, the instrument was created, and is available in case a member state requests it. For the ESM, also the guideline has been drafted, it's approved, so once the ESM becomes operational, again this possibility exists, but it was not discussed, it was not an issue today."
EURO WORKING GROUP HEAD THOMAS WIESER
ON WHETHER SPAIN WILL HAVE TO PROVIDE SOVEREIGN GUARANTEES FOR BANK SUPPORT:
"There will be no sovereign guarantees required."
EU ECONOMIC AND MONETARY AFFAIRS COMMISSIONER OLLI REHN
ON EXTENSIONS FOR SPANISH BUDGET DEFICIT TARGETS:
"We have today discussed on the basis of the Commission's proposals the extension of the correction of the deadline for the deficit of Spain from 2013 from 2014 and we have defined new fiscal targets for the coming three years."
ON ECB AND EFSF:
"The ECB has signed an agency agreement with the EFSF, which is another step towards ensuring that our existing instruments can be used effectively and efficiently to stabilize markets."
EUROGROUP PRESIDENT JEAN-CLAUDE JUNCKER
ASKED IF GREECE WOULD FACE FINANCING PROBLEMS IN AUGUST:
"In the month of August, we will find a solution. There will be no problems."
ON ECB EXECUTIVE BOARD POSITION:
"We agreed to recommend Mr. Yves Mersch, the governor of the Luxembourg central bank, for the vacant position of member of the ECB Executive Board. (His) many qualities and longstanding experience make him particularly qualified for the position."
"I can assure you from a domestic experience point of view that he's really independent. Bear in mind very often I was the victim of his independent statement, this is not a reason to have him moving to Frankfurt but this is the main quality central bankers are supposed to have and he has this quality."
ON SUPPORT FOR SPAIN:
"We have reached a memorandum of understanding on the financial conditionality of Spain, and discussed the key parameters of the EFSF financial assistance facility agreement."
"We are aiming at reaching a formal agreement in the second half of July, taking into account national parliamentary procedures, they are in for a first disbursement of 30 billion euros by the end of the month..."
Following are earlier comments by ministers and officials ahead of the discussions:
GERMAN FINANCE MINISTER WOLFGANG SCHAEUBLE
ON SITUATION IN SPAIN:
"We will talk about Spain in the Eurogroup today. We take stock on the negotiations of the Spanish banking recapitalization. The negotiations are on a good track, I think we will be able to agree on a binding framework and timing.
"We will also get the first reports from the missions to Greece and Cyprus but I don't think we will make decisions today but nobody expected that.
"We will also talk (...) about how we can create a European banking supervision which, once it is in place but not before, would give the possibility for direct access of banks to the European emergency fund. That will take time, it's complex, that's not easy to create but we will work on that."
FINNISH FINANCE MINISTER JUTTA URPILAINEN
"Finland is deeply committed to the euro and to saving the euro. We have had low interest rates, stable prices, and that has been good for Finnish SMEs and pensioners and consumers.
"But of course one of the tasks of the government is to prepare for different scenarios, because the situation is so uncertain that no one can know what happens tomorrow.
"We prepare different scenarios, different paths for the future, but that does not reduce that we are very committed to the joint currency and want to solve the crisis as soon as possible."
"Finland is a country which has stuck to joint rules, one of the very few countries which have done so."
SPANISH ECONOMY MINISTER LUIS DE GUINDOS
ON CREATING A 'BAD BANK':
"In principle we are studying the possibility of creating so called 'companies for the management of real estate assets' which would receive damaged assets at prices based on reasonable valuations and this would be a way of cleaning up and animating the activities of banks in their fundamental business which is capturing deposits and making loans."
ON ADDRESSING SITUATION IN SPAIN:
"This evening we are going to look at two basic issues, firstly Spain's memorandum, i.e. the conditions for the financial assistance process and then the excessive deficit procedure and there the Commission has given its proposal, a new path of fiscal adjustment, and we will be analyzing the implications of that. From the Spanish point of view we will also be explaining the measures that we are taking and that we are going to take."
"In the case of the memorandum there is already the basis for important agreements of a deal on many subjects, which we hope to do today, this afternoon and evening, and afterwards we should reach a definitive agreement on the 20th of this month."
ON CONDITIONS FOR SUPPORT TO SPAIN:
"There are conditions of two types, some which affect the institutions, referring to the injection of capital, they have to carry out a process very similar to that which has been asked of other institutions which have received capital injections, of public aid, and then generic conditions from the point of view of the whole financial sector, which are basically conditions of provisions, transparency."
IRISH FINANCE MINISTER MICHAEL NOONAN
ON SITUATION IN SPAIN:
"People as you know are quite concerned about Spain... so the main decision-making process today and indeed tomorrow (EU finance ministers' meeting) will be about Spain, I understand."
LUXEMBOURG'S FINANCE MINISTER LUC FRIEDEN
ON SITUATION IN GREECE:
"First of all, I'm happy that we have a coalition in Greece now, which wants to negotiate with Europe and is willing to enact reforms. I think that's the most important thing.
"We have to see how realistic the things are that we want from Greece. I think we can accommodate Greece, but Greece must also know that it's not a one-way street. Greece has to enact a series of reforms that we have demanded, we will need to hear the Greek finance minister about this."
ON RECAPITALISING BANKS:
"Conditions will have to be met with regards to the recapitalization of banks, they have to be made fit for the future and there has to be restructuring. We will find a common position in a memorandum that we will write now. There have to be some conditions."
ON EUROGROUP PRESIDENCY AND ECB EXECUTIVE BOARD POST:
"Debates about personnel are always difficult in the European Union, because different challenges have to be met. We have to find a solution quickly. In a time when so many topics are on the agenda it's not good to waste time with personnel debates. I think it's important from an agenda point of view to assign the ECB directors. The term of the head of the Eurogroup is coming to an end. It shouldn't be too difficult to come to a decision today."
FRENCH FINANCE MINISTER PIERRE MOSCOVICI
ON REVIEWING SPANISH DEFICIT TARGET:
"There is a proposal, notably for Spain. It must be examined, I believe, in a positive manner. The proposals on the table seem to me to be able to lead to consensus."
ON EU ECONOMIC GOVERNANCE AND ESM BAILOUT FUND:
"We will discuss options for applying the European Stability Mechanism (ESM). From now, its implementation is possible, it's just a question of days. I also want to make good progress on banking supervision, as we wait for the Commission's proposal in September. I think it's important to move fast. Our hope is to have a working mechanism in place by the end of 2012, and at the same time to advance on the direct recapitalization of banks that we want."
ON NOMINATIONS FOR THE HEAD OF THE EUROGROUP:
"France has made no demands in this regard. Today, we will proceed with a package of different nominations which includes the president of the Eurogroup. It's necessary, because if we have other meetings perhaps in July, there has to be a president and the mandate of Jean-Claude Juncker ends on July 16.
"So it's indispensable that we find an agreement tonight, and what France wants is an extension of Jean-Claude Juncker's mandate if he is able to accept. After that, it's for him to say how long he'd like to remain."
ON THE MEASURES AGREED AT THE LAST EU SUMMIT:
"I remain extremely confident with the decisions taken at the last European Council. I think the fundamental decisions laid a solid basis. It now remains to flesh them out, and flesh them out quickly. That is the job of this Eurogroup today, and possibly for another Eurogroup later this month - to make progress on Spain, on the mechanism requested by (Italian Prime Minister) Mario Monti to face the situation there, even if the fundamentals of the Italian economy are solid. To make progress on Greece, and perhaps to give some more time to some or to others."
Following are excerpts from the Eurogroup statement and comments by ministers and officials after the talks:
EUROGROUP STATEMENT
ON SUPPORT FOR SPAIN FROM EFSF AND ESM BAILOUT FUNDS:
"The Eurogroup has today reached a political understanding on the draft memorandum of understanding underlying the financial assistance for the recapitalization of financial institutions for Spain, to be provided via the EFSF until the ESM becomes available and then transferred to the ESM without gaining seniority status."
"The Eurogroup envisages providing the final approval of the programme by July 20, after national procedures have been completed."
ON EXTENSION TO SPAIN'S BUDGET TARGET:
"The Eurogroup supports the recently adopted Commission recommendation to extend the deadline for the correction of the excessive deficit in Spain by one year to 2014.
ON BANK RECAPITALISATION:
"In order to break the vicious circle between banks and sovereigns, technical discussions on the future ESM direct bank recapitalization instrument will also start in September so that the ESM could, following a regular decision, have the possibility to recapitalize banks directly, once an effective single supervisory mechanism is established."
EFSF HEAD KLAUS REGLING
ON INTERVENTION IN PRIMARY BOND MARKETS:
"This was not discussed today, but the instrument is available as you know under the EFSF. The guidelines for primary market interventions were approved already last year, the instrument was created, and is available in case a member state requests it. For the ESM, also the guideline has been drafted, it's approved, so once the ESM becomes operational, again this possibility exists, but it was not discussed, it was not an issue today."
EURO WORKING GROUP HEAD THOMAS WIESER
ON WHETHER SPAIN WILL HAVE TO PROVIDE SOVEREIGN GUARANTEES FOR BANK SUPPORT:
"There will be no sovereign guarantees required."
EU ECONOMIC AND MONETARY AFFAIRS COMMISSIONER OLLI REHN
ON EXTENSIONS FOR SPANISH BUDGET DEFICIT TARGETS:
"We have today discussed on the basis of the Commission's proposals the extension of the correction of the deadline for the deficit of Spain from 2013 from 2014 and we have defined new fiscal targets for the coming three years."
ON ECB AND EFSF:
"The ECB has signed an agency agreement with the EFSF, which is another step towards ensuring that our existing instruments can be used effectively and efficiently to stabilize markets."
EUROGROUP PRESIDENT JEAN-CLAUDE JUNCKER
ASKED IF GREECE WOULD FACE FINANCING PROBLEMS IN AUGUST:
"In the month of August, we will find a solution. There will be no problems."
ON ECB EXECUTIVE BOARD POSITION:
"We agreed to recommend Mr. Yves Mersch, the governor of the Luxembourg central bank, for the vacant position of member of the ECB Executive Board. (His) many qualities and longstanding experience make him particularly qualified for the position."
"I can assure you from a domestic experience point of view that he's really independent. Bear in mind very often I was the victim of his independent statement, this is not a reason to have him moving to Frankfurt but this is the main quality central bankers are supposed to have and he has this quality."
ON SUPPORT FOR SPAIN:
"We have reached a memorandum of understanding on the financial conditionality of Spain, and discussed the key parameters of the EFSF financial assistance facility agreement."
"We are aiming at reaching a formal agreement in the second half of July, taking into account national parliamentary procedures, they are in for a first disbursement of 30 billion euros by the end of the month..."
Following are earlier comments by ministers and officials ahead of the discussions:
GERMAN FINANCE MINISTER WOLFGANG SCHAEUBLE
ON SITUATION IN SPAIN:
"We will talk about Spain in the Eurogroup today. We take stock on the negotiations of the Spanish banking recapitalization. The negotiations are on a good track, I think we will be able to agree on a binding framework and timing.
"We will also get the first reports from the missions to Greece and Cyprus but I don't think we will make decisions today but nobody expected that.
"We will also talk (...) about how we can create a European banking supervision which, once it is in place but not before, would give the possibility for direct access of banks to the European emergency fund. That will take time, it's complex, that's not easy to create but we will work on that."
FINNISH FINANCE MINISTER JUTTA URPILAINEN
"Finland is deeply committed to the euro and to saving the euro. We have had low interest rates, stable prices, and that has been good for Finnish SMEs and pensioners and consumers.
"But of course one of the tasks of the government is to prepare for different scenarios, because the situation is so uncertain that no one can know what happens tomorrow.
"We prepare different scenarios, different paths for the future, but that does not reduce that we are very committed to the joint currency and want to solve the crisis as soon as possible."
"Finland is a country which has stuck to joint rules, one of the very few countries which have done so."
SPANISH ECONOMY MINISTER LUIS DE GUINDOS
ON CREATING A 'BAD BANK':
"In principle we are studying the possibility of creating so called 'companies for the management of real estate assets' which would receive damaged assets at prices based on reasonable valuations and this would be a way of cleaning up and animating the activities of banks in their fundamental business which is capturing deposits and making loans."
ON ADDRESSING SITUATION IN SPAIN:
"This evening we are going to look at two basic issues, firstly Spain's memorandum, i.e. the conditions for the financial assistance process and then the excessive deficit procedure and there the Commission has given its proposal, a new path of fiscal adjustment, and we will be analyzing the implications of that. From the Spanish point of view we will also be explaining the measures that we are taking and that we are going to take."
"In the case of the memorandum there is already the basis for important agreements of a deal on many subjects, which we hope to do today, this afternoon and evening, and afterwards we should reach a definitive agreement on the 20th of this month."
ON CONDITIONS FOR SUPPORT TO SPAIN:
"There are conditions of two types, some which affect the institutions, referring to the injection of capital, they have to carry out a process very similar to that which has been asked of other institutions which have received capital injections, of public aid, and then generic conditions from the point of view of the whole financial sector, which are basically conditions of provisions, transparency."
IRISH FINANCE MINISTER MICHAEL NOONAN
ON SITUATION IN SPAIN:
"People as you know are quite concerned about Spain... so the main decision-making process today and indeed tomorrow (EU finance ministers' meeting) will be about Spain, I understand."
LUXEMBOURG'S FINANCE MINISTER LUC FRIEDEN
ON SITUATION IN GREECE:
"First of all, I'm happy that we have a coalition in Greece now, which wants to negotiate with Europe and is willing to enact reforms. I think that's the most important thing.
"We have to see how realistic the things are that we want from Greece. I think we can accommodate Greece, but Greece must also know that it's not a one-way street. Greece has to enact a series of reforms that we have demanded, we will need to hear the Greek finance minister about this."
ON RECAPITALISING BANKS:
"Conditions will have to be met with regards to the recapitalization of banks, they have to be made fit for the future and there has to be restructuring. We will find a common position in a memorandum that we will write now. There have to be some conditions."
ON EUROGROUP PRESIDENCY AND ECB EXECUTIVE BOARD POST:
"Debates about personnel are always difficult in the European Union, because different challenges have to be met. We have to find a solution quickly. In a time when so many topics are on the agenda it's not good to waste time with personnel debates. I think it's important from an agenda point of view to assign the ECB directors. The term of the head of the Eurogroup is coming to an end. It shouldn't be too difficult to come to a decision today."
FRENCH FINANCE MINISTER PIERRE MOSCOVICI
ON REVIEWING SPANISH DEFICIT TARGET:
"There is a proposal, notably for Spain. It must be examined, I believe, in a positive manner. The proposals on the table seem to me to be able to lead to consensus."
ON EU ECONOMIC GOVERNANCE AND ESM BAILOUT FUND:
"We will discuss options for applying the European Stability Mechanism (ESM). From now, its implementation is possible, it's just a question of days. I also want to make good progress on banking supervision, as we wait for the Commission's proposal in September. I think it's important to move fast. Our hope is to have a working mechanism in place by the end of 2012, and at the same time to advance on the direct recapitalization of banks that we want."
ON NOMINATIONS FOR THE HEAD OF THE EUROGROUP:
"France has made no demands in this regard. Today, we will proceed with a package of different nominations which includes the president of the Eurogroup. It's necessary, because if we have other meetings perhaps in July, there has to be a president and the mandate of Jean-Claude Juncker ends on July 16.
"So it's indispensable that we find an agreement tonight, and what France wants is an extension of Jean-Claude Juncker's mandate if he is able to accept. After that, it's for him to say how long he'd like to remain."
ON THE MEASURES AGREED AT THE LAST EU SUMMIT:
"I remain extremely confident with the decisions taken at the last European Council. I think the fundamental decisions laid a solid basis. It now remains to flesh them out, and flesh them out quickly. That is the job of this Eurogroup today, and possibly for another Eurogroup later this month - to make progress on Spain, on the mechanism requested by (Italian Prime Minister) Mario Monti to face the situation there, even if the fundamentals of the Italian economy are solid. To make progress on Greece, and perhaps to give some more time to some or to others."
Texas rejects key provisions of Obama's health law
Governor Rick Perry said on Monday Texas will not implement an expansion of the Medicaid program or create a health insurance exchange, placing the state with the highest percentage of people without insurance outside key parts of President Barack Obama's signature law.
The announcement makes Texas the most populous state that has rejected the provisions. Some 6.2 million people are without health insurance in Texas, or 24.6 percent of the state population, the highest percentage in the nation. California has more people without insurance but a lower percentage.
Perry joined fellow Republican governors of Florida, South Carolina, Wisconsin, Mississippi and Louisiana in rejecting the two provisions of the law, according to americanhealthline.com. They hope that November elections will result in Republicans winning the White House and enough seats in Congress to repeal the law.
"I will not be party to socializing healthcare and bankrupting my state in direct contradiction to our Constitution and our founding principles of limited government," Perry said in a statement.
He sent a letter on Monday to U.S. Health and Human Services Secretary Kathleen Sebelius asking her to relay the message to Obama that Perry opposes the provisions "because both represent brazen intrusions into the sovereignty of our state."
"I stand proudly with the growing chorus of governors who reject the Obamacare power grab. Neither a 'state' exchange nor the expansion of Medicaid under this program would result in better 'patient protection' or in more 'affordable care,'" said Perry, who dropped out of the Republican presidential race in January. "They would only make Texas a mere appendage of the federal government when it comes to health care."
Sebelius spokesman Keith Maley said the department "will continue to work with states to ensure they have the flexibility and resources they need to implement" the law known formally as the Patient Protection and Affordable Care Act.
Perry, the longest-serving governor in Texas history, is a frequent critic of the Obama administration and the author of a book on states' rights called "Fed Up! Our Fight to Save America From Washington." Perry in 2009 rejected federal funding for unemployment benefits because accepting it would have required Texas to expand the number of people entitled to draw the benefits.
CALLS MEDICAID A FAILURE
Texas was one of 26 states that challenged in court the 2010 health law.
If any states resisting the healthcare plan do not create insurance exchanges, the federal government plans to set them up. The exchanges are intended to extend health coverage to an additional 16 million people, while the Medicaid expansion would broaden eligibility requirements to cover another 16 million people.
The U.S. Supreme Court last month upheld the law's individual mandate, which demands everyone who can afford to buy health insurance does so or face a fine, as constitutional.
But the court said Congress went too far in the part of the law that requires states to expand Medicaid, the federal-state health insurance program for low-income people. The court said the federal government may not take away Medicaid dollars from states that do not comply with the expansion.
On Fox News on Monday, Perry said Medicaid is a failure.
"To expand this program is like adding a thousand people to the Titanic," Perry said. "You don't expand a program that is not working already. If the federal government were serious about finding solutions, what they would do is block-grant those dollars back to the states, so states could find more efficient ways to deliver healthcare."
Anne Dunkelberg, associate director of the Center for Public Policy Priorities, an Austin group that advocates for low- and middle-income Texans, said the Medicaid expansion would extend health coverage to as many as 2 million uninsured Texans.
"Failing to expand Medicaid would squander the opportunity to pump tens of billions of dollars into our state economy and leave as many as 1.5 to 2 million of struggling Texans out in the cold without insurance coverage," she said in a statement.
Texas Democratic Party spokeswoman Rebecca Acuna called Perry's decision on Medicaid "cruel and negligent."
The announcement makes Texas the most populous state that has rejected the provisions. Some 6.2 million people are without health insurance in Texas, or 24.6 percent of the state population, the highest percentage in the nation. California has more people without insurance but a lower percentage.
Perry joined fellow Republican governors of Florida, South Carolina, Wisconsin, Mississippi and Louisiana in rejecting the two provisions of the law, according to americanhealthline.com. They hope that November elections will result in Republicans winning the White House and enough seats in Congress to repeal the law.
"I will not be party to socializing healthcare and bankrupting my state in direct contradiction to our Constitution and our founding principles of limited government," Perry said in a statement.
He sent a letter on Monday to U.S. Health and Human Services Secretary Kathleen Sebelius asking her to relay the message to Obama that Perry opposes the provisions "because both represent brazen intrusions into the sovereignty of our state."
"I stand proudly with the growing chorus of governors who reject the Obamacare power grab. Neither a 'state' exchange nor the expansion of Medicaid under this program would result in better 'patient protection' or in more 'affordable care,'" said Perry, who dropped out of the Republican presidential race in January. "They would only make Texas a mere appendage of the federal government when it comes to health care."
Sebelius spokesman Keith Maley said the department "will continue to work with states to ensure they have the flexibility and resources they need to implement" the law known formally as the Patient Protection and Affordable Care Act.
Perry, the longest-serving governor in Texas history, is a frequent critic of the Obama administration and the author of a book on states' rights called "Fed Up! Our Fight to Save America From Washington." Perry in 2009 rejected federal funding for unemployment benefits because accepting it would have required Texas to expand the number of people entitled to draw the benefits.
CALLS MEDICAID A FAILURE
Texas was one of 26 states that challenged in court the 2010 health law.
If any states resisting the healthcare plan do not create insurance exchanges, the federal government plans to set them up. The exchanges are intended to extend health coverage to an additional 16 million people, while the Medicaid expansion would broaden eligibility requirements to cover another 16 million people.
The U.S. Supreme Court last month upheld the law's individual mandate, which demands everyone who can afford to buy health insurance does so or face a fine, as constitutional.
But the court said Congress went too far in the part of the law that requires states to expand Medicaid, the federal-state health insurance program for low-income people. The court said the federal government may not take away Medicaid dollars from states that do not comply with the expansion.
On Fox News on Monday, Perry said Medicaid is a failure.
"To expand this program is like adding a thousand people to the Titanic," Perry said. "You don't expand a program that is not working already. If the federal government were serious about finding solutions, what they would do is block-grant those dollars back to the states, so states could find more efficient ways to deliver healthcare."
Anne Dunkelberg, associate director of the Center for Public Policy Priorities, an Austin group that advocates for low- and middle-income Texans, said the Medicaid expansion would extend health coverage to as many as 2 million uninsured Texans.
"Failing to expand Medicaid would squander the opportunity to pump tens of billions of dollars into our state economy and leave as many as 1.5 to 2 million of struggling Texans out in the cold without insurance coverage," she said in a statement.
Texas Democratic Party spokeswoman Rebecca Acuna called Perry's decision on Medicaid "cruel and negligent."
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