Warning of a stock market rout on Monday unless a eurozone rescue package is found

Obama urges France and Germany to move quickly to find a solution to the eurozone crisis, while UK chancellor George Osborne claims Britain is ‘ahead of the curve’ EU leaders were under renewed pressure today to agree immediate steps towards a full-scale rescue of ailing eurozone economies or risk a stock market rout when exchanges open on Monday. Fears that months of debate over how to resolve the Greek debt crisis had brought the world economy to another “Lehman’s moment” led several prominent analysts to warn that the situation could spark a run on bank stocks next week. President Obama and the US treasury secretary, Tim Geithner, welcomed a commitment by the European Central Bank to step up its efforts to boost growth, which could mean a cut in interest rates at its next meeting in October, but pressed France and Germany to move quickly with a rescue package to prevent further turmoil. George Osborne warned that the leaders of the eurozone had six weeks to end their political wrangling and resolve the continent’s crippling debt crisis. Eric Wand, a gilts strategist at Lloyds Corporate Markets, said: “If we come in on Monday with nothing on the table, then we’ll be back to the races.” Wand warned that loans from the ECB would be more sticking plaster and unlikely to satisfy investors. “[They] are hoping for a co-ordinated policy response. If we get that, then risk assets could rally, but for how long? More liquidity doesn’t really cut the mustard,” he said. Stocks rallied today after G20 leaders said they would do all in their power to prevent another crash. The FTSE rebounded after the assurance to finish the day up 25 points at 5066 while the German Dax and French CAC both ended the day marginally higher. But a week of speculation that several eurozone banks could be wrecked by defaults in the peripheral countries without further ECB support and large capital injections has helped knock $3.4tn (£2.2tn) off global stock values since Monday. The FTSE had its second worst week this year and French and German exchanges remain at two-thirds of their value in July. Commodities fell to a nine-month low as silver, copper and nickel tumbled. The Standard & Poor’s GSCI Index of 24 commodities fell as much as 2.2%, leaving it 7.8% lower than at the start of the week. Speaking in Washington, Osborne said that the turmoil in the world’s financial markets meant there was now “a far greater sense of urgency” and mounting pressure on Europe from the G20 group of developed and developing nations. “There is a sense from across the leading lights of the eurozone that time is running out. There is a clear deadline at the Cannes (G20) summit in six weeks time,” the chancellor said. “The eurozone has six weeks to resolve this political crisis.” He added that “bad politics” were leading to “bad economics” in the eurozone. “We need political solutions that can help resolve the economic problems.” Osborne said the package of measures agreed in July to provide financial support for troubled members of the single currency needed to be implemented, as well as ensuring banks had enough capital to withstand market pressures. “I wouldn’t say all the pieces of the jigsaw are in place,” Osborne said, adding that the members of the eurozone had to supplement monetary union with closer fiscal ties. While the government had no intention of joining monetary union, the chancellor said it was in Britain’s interests for the eurozone to work. “The break-up of Europe would be bad for Britain.” The chancellor said Europe needed to show that it had enough firepower to convince the markets it was getting ahead of the curve, and made it clear that the €440bn European Financial Stability Facility needed to be beefed up. “I am not sure it is adequate,” Osborne said. He refused to speculate on whether Greece would be forced to default on its debts, but said the government had contingency plans in the event that the worst-affected eurozone country did capitulate. “I have made it a priority for the Financial Services Authority and the Bank of England to make sure that the UK banking system is adequately capitalised and have sufficient liquidity to deal with all eventualities. We have stress-tested sovereign writedowns.” Osborne admitted that the darkening international economic outlook would have repercussions for the UK but insisted that he had no intention of amending his tough deficit reduction plans. It was up to the Bank of England, he added, to support demand over the coming months. “A credible fiscal plan allows you to have a looser monetary policy than would otherwise be the case. My approach is to be fiscally conservative but monetarily active.” His comments come amid signs from Threadneedle Street that it would restart its quantitative easing programme over the coming months. The Bank pumped £200bn of electronically created money into the economy between early 2009 and early 2010 in an attempt to lift the economy out of recession. Asked how bad the situation in the UK would have to get before he would consider changing course, Osborne said: “The UK is taking appropriate action. It is very clear what has got to happen. We are sticking to the plan. These discussions in Washington are about the eurozone and the challenges there, not about market pressures on the UK. We have got ahead of the curve and have credibility.” The chancellor said the heavily indebted state of Britain meant that he could not simply “pull a lever” to boost demand. “This was a different sort of recession and it is a different sort of recovery,” he said.He added that there was a certain amount of flexibility built into his budget plans because weaker growth would allow the automatic stabilisers – a bigger budget deficit caused by higher benefit payments and lower tax receipts – to kick in. The government would announce supply-side reforms of the economy to remove obstacles to growth over the coming months, Osborne said. Global economy European debt crisis Financial crisis George Osborne G20 Phillip Inman Larry Elliott guardian.co.uk

Posted by on September 23, 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.