European governments may unleash as much as 940 billion euros (US$1.3 trillion) to fight the debt crisis, seeking to break a deadlock between Germany and France that is forcing leaders to hold two summits within four days.
Negotiations on combining the EU’s temporary and planned permanent rescue funds as of the middle of next year, while scrapping a ceiling on bailout spending, accelerated this week after efforts to leverage the temporary fund ran into European Central Bank (ECB) opposition and provoked the Franco-German clash, two people familiar with the discussions said.
The option may be one way out of the impasse between Europe’s two biggest economies as US President Barack Obama presses for them to find a solution.
Finance ministers were to meet in Brussels yesterday from about 2pm to lay the groundwork for a meeting tomorrow of government leaders that had been the deadline for a solution to the debt crisis.
A summit for Wednesday was set after Germany and France said the EU needs more time to seal a “global and ambitious” accord.
In Greece, Prime Minister George Papandreou won a parliamentary vote on late Thursday on further austerity measures to secure more aid under last year’s bailout, but EU officials weighing deeper losses for Greek bondholders in a revamped bailout are concerned that any investor involvement risks further roiling markets, people familiar with the deliberations say.
Greece has accumulated at least 20 billion euros in additional financing needs since a 159 billion euro package was set in July, because of a deepening recession and delays in enacting the plan, the people said.
The EU is considering five scenarios, ranging from sticking with July’s voluntary swap to a so-called hard restructuring, where investors could be forced to exchange Greek bonds for new ones at 50 percent of their value, the people said.
The 440 billion euro European Financial Stability Facility (EFSF) has already spent or committed about 160 billion euros, including loans to Greece that will run for up to 30 years. Instead of replacing it with the European Stability Mechanism (ESM), which will hold 500 billion euros, in mid-2013, a consensus is emerging on merging the two funds, the people said.
The ESM will operate with paid-in capital as opposed to the EFSF, which sells bonds guaranteed by governments.
The EFSF may be authorized to provide credit lines of as much as 10 percent of a country’s economy, according to a proposal prepared for this week’s meetings. By that measure, credit lines for Spain and Italy, countries that required ECB support, could reach 270 billion euros.
However, Germany and France, the eurozone’s biggest financial backers, are at odds over how to do that. The fund’s tasks include recapitalization of banks and buying bonds in primary and secondary markets.
Paris favors creating a bank out of the EFSF, boosting its financial clout with backing from the ECB, a proposal that Berlin rejects, German Federal Minister of Finance Wolfgang Schaeuble told lawmakers in Berlin this week. French Prime Minister Francois Fillon said on Thursday that the eurozone should agree to use leverage to make the fund “massive.”
Meanwhile, France is among eurozone sovereigns likely to be downgraded in a stressed economic scenario, according to Standard & Poor’s.
The sovereign ratings of Spain, Italy, Ireland and Portugal would also be reduced by another one or two levels in either of New York-based S&P’s two stress scenarios, the ratings firm said in a report dated yesterday. These assume low economic growth and a double-dip recession in the first set of circumstances and add an interest-rate shock to the recession in the second.
Spain, which was “AAA” between December 2004 and January 2009, was reduced one step to “AA-“ by S&P on Oct. 13. Moody’s stripped it of its “Aa2” rating on Tuesday and now grades the nation two steps lower at “A1.”
S&P cut Italy a step to “A” on Sept. 19, while Moody’s slashed its rating three levels to “A2” on Oct. 4. Ireland, which received an international bailout last year, is graded “BBB+” by S&P, while Portugal, which also received a bailout, has a “BBB-” rating.
Taiwan Transport and Storage Corp (TTS, 台灣通運倉儲) yesterday unveiled its first electric tractor unit — manufactured by Volvo Trucks — in a ceremony in Taipei, and said the unit would soon be used to transport cement produced by Taiwan Cement Corp (TCC, 台灣水泥). Both TTS and TCC belong to TCC International Holdings Ltd (台泥國際集團). With the electric tractor unit, the Taipei-based cement firm would become the first in Taiwan to use electric vehicles to transport construction materials. TTS chairman Koo Kung-yi (辜公怡), Volvo Trucks vice president of sales and marketing Johan Selven, TCC president Roman Cheng (程耀輝) and Taikoo Motors Group
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