Tags: Europe Financial Crisis

Disagreement Over EU Debt-Crisis Measures Deepens

Wednesday, 15 Dec 2010 11:27 AM

Disagreement over how to fight Europe's debt crisis deepened Wednesday, on the eve of a two-day summit of European leaders in Brussels, as violent protests and uncertainty fueled investors' concerns once again.

Amid the political deadlock, the crisis' effects rang out across the region. Rioters in Athens smashed cars and hurled gasoline bombs at police during a nationwide protest and general strike against the government's latest austerity measures.

Rating agency Moody's meanwhile warned it may downgrade the debt of Spain — the eurozone country many economist say is too big to be bailed out.

Still, diplomats said the meeting of European Union heads of state and government Thursday and Friday would not result in any new shock-and-awe decisions to contain the smouldering debt crisis. Instead it will focus on a small change to EU treaties to set up a new crisis mechanism agreed almost two months ago.

Calls for bolder actions, either increasing the eurozone's 750 billion euro ($1 trillion) bailout fund or creating pan-European bonds to boost confidence in the euro, were nevertheless growing louder.

German Chancellor Angela Merkel — so far the most ardent opponent of both proposals — was attacked by the country's biggest opposition party for her inertia.

In an opinion piece in the Financial Times, the leader of the Social Democrats, Frank-Walter Steinmeier, and Peer Steinbrueck, Germany's former finance minister, said a "more radical, targeted effort to end the current uncertainty" was necessary.

They called for a partial restructuring of the debts of Greece, Ireland and Portugal, guarantees for the bonds of stable countries and the limited introduction of pan-European bonds.

Meanwhile, EU officials indicated that an increase in the bailout fund would not be ruled out.

The president of the EU's executive Commission, Jose Manuel Barroso, said the so-called European Financial Stability Facility, while far from exhausted, "can be improved and adapted."

However, he also asked politicians to focus on solutions to the crisis for which a political consensus was possible. "What we don't need is a beauty contest between leaders, a cacophony of diverging scenarios, or announcements that are not followed by action," he told the European Parliament in Strasbourg.

EU's Monetary Affairs Chief Olli Rehn, also speaking in Strasbourg, said it was a priority to make the current bailout fund "more agile and effective."

His comments echoed a statement from European Central Bank President Jean-Claude Trichet. "On the EFSF I can say we are calling for maximum flexibility and I would say maximum capacity quantitatively and qualitatively," Trichet told journalists Monday night.

But the pressure on European policymakers to find a way out of the debt crisis remained high.

Ratings agency Moody's on Wednesday warned it may downgrade Spain's debt because the government is vulnerable to a borrowing crunch next year, when the recapitalization of weak banks could prove more costly than expected for public finances.

The agency, which lowered Spain's rating from Aaa to Aa1 in September, said it will review the rating again because of high financing needs in 2011. However, it said that it does not expect the country to need a bailout.

Moody's warning comes a day after Spain had to pay significantly higher interest rates when it sold 2.5 billion euros ($3.3 billion) in treasury bills to help refinance its debt load.

In Greece, the 7th general strike of the year protesting painful austerity measures imposed as part of its 110 billion euro bailout earlier this year, grounded flights, closed factories, and disrupted hospital and transport services.

Protests in Athens escalated, as youths wearing black masks and ski goggles used sledgehammers to smash paving stones and hurled the rubble at police. A central post office near parliament briefly caught fire as employees and bystanders ran for safety.

The chaotic clashes were among the worst since the start of Greece's financial crisis. In May, three people died in a bank torched by rioters.

The Greek strike action was supported by several hundred members of the European Trade Union Confederation, who gathered in front of the European Commission headquarters in Brussels. They demanded that EU leaders focus on spurring economic growth rather than imposing further bugdet cuts.

Portugal's government, meanwhile, was expected to unveil further reforms designed to prevent the country from having to follow Greece and Ireland in seeking an international bailout.

Prime Minister Jose Socrates has held talks in recent days with trade unions and business leaders as his Socialist government searches for ways of spurring economic growth despite potentially crippling austerity measures designed to cut sovereign debt.

The government was expected to announce its latest reforms after a weekly Cabinet meeting Wednesday.

Portugal's high debt and low growth have made it one of the weakest members of the 16-nation eurozone, but the government insists it doesn't need or want a financial rescue of the kind provided to Greece and Ireland.

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Disagreement over how to fight Europe's debt crisis deepened Wednesday, on the eve of a two-day summit of European leaders in Brussels, as violent protests and uncertainty fueled investors' concerns once again.Amid the political deadlock, the crisis' effects rang out across...
Europe Financial Crisis
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2010-27-15
 

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