European Central Bank (ECB) President Jean-Claude Trichet warned of threats to the financial system as the conflict among political leaders intensified over how to extricate Europe from the debt crisis.
“The crisis has reached a systemic dimension,” Trichet told European lawmakers in Brussels yesterday. “Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively.”
European officials are toiling to meet an end-of-month deadline set by French President Nicolas Sarkozy to get to grips with the crisis, which has propelled Greece to the brink of default, shaken world markets and fueled speculation that the 17-nation currency might not survive in its current form.
Photo: Reuters
Greek bondholders may face writedowns of more than 60 -percent, Luxembourg Prime Minister Jean-Claude Juncker said, setting the stage for high-stakes bargaining at an Oct. 23 crisis summit. Asked by Austrian television on Monday night whether Europe is considering writedowns of 50 percent to 60 percent, Juncker, who chairs euro-area finance meetings, said: “We’re talking about more.”
Germany, Europe’s largest economy, is pushing for bondholder losses that go beyond the 21 percent envisioned in a July accord, running into resistance from the ECB and commercial banks.
Yesterday’s crisis-management efforts were to range from a vote in Slovakia on upgrading the 440 billion euro (US$600 billion) rescue fund to the release of a report by European and IMF experts on Greece’s economic prospects.
After Malta’s endorsement on late Monday, the Slovak parliament stood as the only barrier to reinforcing the fund with the power to buy bonds in the primary and secondary markets, offer precautionary credit lines and enable the bolstering of bank capital.
Slovak Prime Minister Iveta Radicova sought to sideline opponents in her coalition by tying the European Financial Stability Facility (EFSF) ratification to a no-confidence motion and pledged to hold a second vote if the first one failed yesterday.
Political jousting in Slovakia, which sat out Greece’s original 110 billion euro aid program last year, showed how Europe’s unanimous decision-making principle makes the emergency response hostage to local politics.
Belgian Prime Minister Yves Leterme said a Slovak veto shouldn’t derail the fund. Speaking to Bloomberg Television late on Monday, he called on the remaining 16 euro governments “to take over the burden and we’ll have to defend the euro” in case of a Slovak rejection.
In postponing the euro summit by five days on Monday, EU President Herman Van Rompuy sought extra time to pursue a “comprehensive” package, including a solution for Greece, aid for banks and a further strengthening of the rescue fund.
The summit, now slated for a Sunday when the US and European markets are closed, will be preceded by a finance ministers’ meeting on a date to be determined. Weekends are Europe’s traditional time for market-sensitive decisions, as when the euro area created the rescue fund in May last year.
“There’s no obvious solution,” Luxembourg Finance Minister Luc Frieden told reporters in Luxembourg yesterday. “There are several options that must be examined from the technical and political points of view.”
The ECB gave its blessing to one method of bolstering the fund, saying it could be used to insure a portion of new bonds sold by debt-strapped nations, automatically extending the fund’s coverage.
EFSF resources “should be dedicated to enhance sovereign debt new issuance of securities, thus multiplying their effect,” ECB Vice President Vitor Constancio said in Milan, Italy, on Monday.
Officials are working out how to scale up the EFSF’s firepower without requiring another round of parliamentary approvals or dipping into the balance sheet of the ECB. The central bank has ruled out granting the EFSF a banking license.
For Greece, the endgame drew nearer with an announcement that EU, ECB and IMF experts were likely to complete their economic-review mission yesterday.
The report will put Greece’s budget deficit for this year at 9.1 percent of GDP, missing the original target of 7.5 percent and a revised target of 8.5 percent, Kathimerini newspaper reported, without citing anyone.
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