US and China call for action on eurozone debt crisis

Wen Jiabao lectures EU leaders on the need for structural reform but they will make no decision until summit next week America and China, the world’s two economic superpowers, have again urged EU leaders to resolve the eurozone’s sovereign debt crisis and prevent the world from sliding into another slump. As it emerged that no decisions would be taken by European leaders until an unprecedented second eurozone summit next Wednesday, Chinese premier Wen Jiabao told EU leaders to stop the debt crisis spreading and lectured them on the need for structural reform. His outspoken comments, in a phone call with Herman Van Rompuy, the European council president, came after Brussels cancelled an EU-China summit planned for Wednesday and hours after Barack Obama had a transatlantic video conference call with the French president, Nicolas Sarkozy, and German chancellor, Angela Merkel. Wen told Van Rompuy: “The most urgent task is to take decisive measures to prevent the debt crisis spreading further and avoid financial market turbulence, a recession and fluctuations in the euro.” Britain’s chancellor, George Osborne, said before Saturday’s meeting of the 27 EU finance ministers: “The coming days will be critical for resolving the crisis in the eurozone. I am convinced of everyone’s commitment to this. A resolution to the eurozone crisis would be the biggest boost to growth in Britain and around the world.” But Europe’s leaders continued to feud in public and private over the reasons for twice delaying final decisions, with France and Germany still at loggerheads over fundamental issues and Italy and Spain, let alone Greece, under severe pressure to fix their budgets as all of them slash economic growth forecasts for 2012. Arriving for a meeting of eurogroup finance ministers, Jean-Claude Juncker, the group’s chairman and veteran Luxembourg premier, admitted that the outside impression given by the EU was “disastrous”. He said: “It does not appear a bright example of superior statesmanship.” On the uppermost floor of the Berlaymont, the European commission’s HQ, the talk was of how Merkel and Sarkozy had in effect sabotaged Sunday’s summit by insisting on taking all the decisions themselves. “Previously, 90% of decisions were taken before the summit, and now everything has to be decided at the summit table.” Merkel was accused of failing to realise until it was too late that too much work remained to be done to ensure a successful summit. But in Berlin government sources attacked foot dragging by senior officials preparing the dossiers, including a key report on the sustainability of Greek debt promised for Wednesday morning and still unavailable on Friday. As Juncker cancelled a planned news conference after the eurogroup meeting, it emerged that the only agreement reached so far on the three core issues was on recapitalising Europe’s 60 or 70 “systemic” banks. They are now said to require capital buffers of around €80bn-€90bn to withstand exposure to potential debt defaults. The ratings agency Standard & Poors calculated that 21 of the 47 banks it had sampled might need €91bn under the “stress test” of a double-dip recession. This proposal is expected to be approved by the 27 finance ministers on Saturday and formally signed off by the EU-27 summit on Sunday, but France still insists that its banks be given as much as nine months to meet the new 9% capital ratio target as it fights to defend its AAA credit rating. Government sources in Berlin sought to play down differences with Paris on the two outstanding issues of how and by how much to “leverage” the eurozone’s main bailout find, the European Financial Stability Facility (EFSF), and the scale of the losses, or “haircuts”, private creditors should suffer as the price for restructuring Greek debt and giving final approval to the second bailout package of €109bn (£95bn) for Greece. Insisting that disagreements between Germany and France were on purely technical questions, the sources said the two agreed on the fundamentals. It is even claimed that Sarkozy has dropped a key demand that the European Central Bank help to bolster the EFSF’s financial firepower from the current €440bn to closer to the €2tn sought by the US, the UK and market players, turning the fund into a bank. Berlin is pushing for two options: either making the EFSF an insurer which would offer first-loss guarantees to private creditors who buy new issues of government debt from countries under pressure such as Spain and Italy; or combining the bailout fund with last-resort IMF loans. Confidential background reports obtained by the Guardian suggest that these loans, valid for a year but renewable twice for six months, could be as much as 2 of the affected country’s GDP. Sources in Berlin said these two options – among a dozen being studied – are “the most promising.” Profound disagreements, meanwhile, resurfaced over the write-downs banks and insurers would have to suffer on Greek debt to make the latter sustainable. Last July these were set at 21% for private creditors and were entirely voluntary but they could now become compulsory and be set at anywhere between 30% and 50%. The outcome of the next few days could hinge on talks on Saturday between Merkel and Sarkozy, though the French president may still be smarting from an entirely fruitless flight he made to Frankfurt this week for emergency talks with the German chancellor. European debt crisis Euro European Union Economics Euro Europe China United States European banks guardian.co.uk

Posted by on October 21, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.