 In this photo taken Dec. 17, 2010, a beggar asks for coins near an open air Christmas market in Milan, Italy. The debt crisis that erupted two years ago in Greece flares anew in Ireland, and has quickly threatened to engulf Portugal, Spain, and Italy. AP photo |
European Union officials are trying to forge a “comprehensive” plan to contain the sovereign debt crisis.
“Our most pressing priority is to break the vicious circle of unsustainable debt, financial turbulence and sub-optimal growth,” EU Economic and Monetary Affairs Commissioner Olli Rehn wrote in Wednesday’s Financial Times. The lending capacity of the EU’s main bailout fund, the 440 billion-euro ($572 billion) European Financial Stability Facility, or EFSF, “should be reinforced and the scope of its activity widened,” he said.
The cost of insuring European sovereign debt has climbed to a record this month as leaders struggle to contain a crisis that first broke out in Greece at the end of 2009. Bailouts for Greece and Ireland, budget cutting in Portugal and Spain and an agreement to create a permanent debt-crisis mechanism have failed to stabilize bond markets.
On Thursday, Spain will auction as much as 3 billion euros of five-year bonds, while Italy will market 6 billion euros of securities maturing in 2026 and 2015.
Some EU leaders have suggested the EU’s fund could be used to buy government bonds. Luxembourg Prime Minister Jean-Claude Juncker said in December deliberations were under way over more flexible use of the fund instead of waiting until the last minute to arrange all-or-nothing lifelines like the 85 billion-euro package granted to Ireland on Nov. 28.
Asked whether shorter-term credits or bond purchasing are up for debate, Juncker said measures being considered are “exactly those that you mentioned.”
The “comprehensive” solution may also involve faster debt reduction and lowering interest rates for aid recipients.
Radical suggestions
EU member states should accelerate efforts to fix their finances, Rehn was to say in a report to be issued in Brussels Wednesday, Sueddeutsche Zeitung said.
The 27 EU members should reduce debt by at least 1 percent of gross domestic product, or GDP, per year over 20 years to bring it back to 60 percent of GDP from more than 80 percent on average at present, Rehn suggests, the newspaper said.
Meanwhile, Nobel Prize-winning economist Christopher Pissarides said the EU doesn’t have the resources to rescue Spain if it “collapses,” an event that could lead to the end of the euro.
A collapse would be “a very serious problem,” Pissarides, who teaches at the London School of Economics, said at a forum in Beijing Wednesday. Such an event “might even see the end of the euro as a common currency,” he said.
“If Spain collapses the way Greece has collapsed I don’t think the European Union has the resources to rescue it,” Pissarides said.
Pissarides shared the 2010 Nobel Prize in economics with Dale Mortensen and Peter Diamond for research into the difficulties of matching supply and demand, particularly in the labor market.
“If Spain were to collapse then the money needed to rescue it would be so much that I doubt whether the stronger European nations, Germany in particular, would be either able or willing to accumulate all of the funds,” Pissarides said.
Policymakers may need to seek a more fundamental solution instead, such as Spain temporarily reverting to the peseta, he added.
Helping hand from Asia
Japan pledged Tuesday to buy debt issued by Europe’s financial-aid funds, joining China in assisting the region as it battles against its debt crisis. Chinese Vice Premier Li Keqiang last week expressed confidence in Spain’s financial markets and pledging more purchases of that country’s debt.
The extra yield investors demand to hold 10-year Spanish government bonds rather than German bunds touched a record 2.98 percentage points on Nov. 30 compared with an average of 0.15 percentage point over the first decade of the monetary union.
Concern that the country won’t be able to reduce the euro region’s third-highest budget deficit and avoid a European Union bailout has driven up financing expenses for banks, which have more than 30 billion euros ($39 billion) in debt coming due in the next four months.
“Throughout this whole crisis the response of policymakers in Europe has been terribly reactive,” Russell Jones, global head of fixed-income strategy at Westpac Banking, said on Bloomberg Television. “That’s just giving an incentive for the markets to continue to drive through their speculative attacks on different bond markets to drive this further and further to a rather unpleasant conclusion.”
“Our most pressing priority is to break the vicious circle of unsustainable debt, financial turbulence and sub-optimal growth,” EU Economic and Monetary Affairs Commissioner Olli Rehn wrote in Wednesday’s Financial Times. The lending capacity of the EU’s main bailout fund, the 440 billion-euro ($572 billion) European Financial Stability Facility, or EFSF, “should be reinforced and the scope of its activity widened,” he said.
The cost of insuring European sovereign debt has climbed to a record this month as leaders struggle to contain a crisis that first broke out in Greece at the end of 2009. Bailouts for Greece and Ireland, budget cutting in Portugal and Spain and an agreement to create a permanent debt-crisis mechanism have failed to stabilize bond markets.
On Thursday, Spain will auction as much as 3 billion euros of five-year bonds, while Italy will market 6 billion euros of securities maturing in 2026 and 2015.
Some EU leaders have suggested the EU’s fund could be used to buy government bonds. Luxembourg Prime Minister Jean-Claude Juncker said in December deliberations were under way over more flexible use of the fund instead of waiting until the last minute to arrange all-or-nothing lifelines like the 85 billion-euro package granted to Ireland on Nov. 28.
Asked whether shorter-term credits or bond purchasing are up for debate, Juncker said measures being considered are “exactly those that you mentioned.”
The “comprehensive” solution may also involve faster debt reduction and lowering interest rates for aid recipients.
Radical suggestions
EU member states should accelerate efforts to fix their finances, Rehn was to say in a report to be issued in Brussels Wednesday, Sueddeutsche Zeitung said.
The 27 EU members should reduce debt by at least 1 percent of gross domestic product, or GDP, per year over 20 years to bring it back to 60 percent of GDP from more than 80 percent on average at present, Rehn suggests, the newspaper said.
Meanwhile, Nobel Prize-winning economist Christopher Pissarides said the EU doesn’t have the resources to rescue Spain if it “collapses,” an event that could lead to the end of the euro.
A collapse would be “a very serious problem,” Pissarides, who teaches at the London School of Economics, said at a forum in Beijing Wednesday. Such an event “might even see the end of the euro as a common currency,” he said.
“If Spain collapses the way Greece has collapsed I don’t think the European Union has the resources to rescue it,” Pissarides said.
Pissarides shared the 2010 Nobel Prize in economics with Dale Mortensen and Peter Diamond for research into the difficulties of matching supply and demand, particularly in the labor market.
“If Spain were to collapse then the money needed to rescue it would be so much that I doubt whether the stronger European nations, Germany in particular, would be either able or willing to accumulate all of the funds,” Pissarides said.
Policymakers may need to seek a more fundamental solution instead, such as Spain temporarily reverting to the peseta, he added.
Helping hand from Asia
Japan pledged Tuesday to buy debt issued by Europe’s financial-aid funds, joining China in assisting the region as it battles against its debt crisis. Chinese Vice Premier Li Keqiang last week expressed confidence in Spain’s financial markets and pledging more purchases of that country’s debt.
The extra yield investors demand to hold 10-year Spanish government bonds rather than German bunds touched a record 2.98 percentage points on Nov. 30 compared with an average of 0.15 percentage point over the first decade of the monetary union.
Concern that the country won’t be able to reduce the euro region’s third-highest budget deficit and avoid a European Union bailout has driven up financing expenses for banks, which have more than 30 billion euros ($39 billion) in debt coming due in the next four months.
“Throughout this whole crisis the response of policymakers in Europe has been terribly reactive,” Russell Jones, global head of fixed-income strategy at Westpac Banking, said on Bloomberg Television. “That’s just giving an incentive for the markets to continue to drive through their speculative attacks on different bond markets to drive this further and further to a rather unpleasant conclusion.”
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