Sun, Jan 08, 2012 page11

• Italy, France meet with euro under fire

  RECESSION LOOMS: The eurozone faces record-high unemployment, low retail sales, sinking consumer and business confidence and a possible credit downgrade for France

  • AFP, PARIS
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  The eurozone’s debt-racked economies came under renewed pressure on Friday as bad economic data undermined leaders’ attempts to reassure markets that an end to the crisis is in sight.

  Italian Prime Minister Mario Monti met French President Nicolas Sarkozy in Paris as the single currency bloc’s second and third-biggest economies sought to head off doubts about their deficit reduction plans.

  The pair announced a mini--summit with German Chancellor Angela Merkel on Jan. 23, but also revealed a split in Europe’s position, with France warning that it may go it alone on a financial transaction tax.

  

  French President Nicolas Sarkozy, right, greets Italian Prime Minister Mario Monti as he arrives for a meeting at the Elysee Palace in Paris, France, on Friday.

  Photo: EPA

  European governments and markets were also confronted with a raft of gloomy economic figures from Brussels — unemployment stuck at a record high, retail sales down and consumer and business confidence sinking.

  The eurozone’s economy contracted in the last quarter of last year and will likely shrink again in the first quarter of the year, putting it in recession, analysts said.

  The euro plunged briefly under US$1.27 for first time since September 2010.

  “Today’s batch of eurozone data has recession written all over it,” ING analyst Martin van Vliet said.

  Nervous European banks parked 455 billion euros (US$582 billion) in the safe haven of the European Central Bank overnight — a new record — preferring to earn low interest rather than take the risk of lending to each other.

  After a brief respite from bad headlines over the New Year holiday period, the eurozone debt crisis has resurfaced with a vengeance, driving down the single currency and threatening Italy and Spain.

  France has yet to face the same soaring interest rates as its southern neighbors, but its “AAA” debt rating is under threat of a downgrade, and bond markets are quickly losing faith in EU financial reform plans.

  “It’s not France being targeted, it’s 15 of the 17 members of the eurozone,” Standard and Poor’s chief European economist Jean-Michel Six told the daily Le Parisien when asked about France’s “AAA.”

  Monti rattled markets with an unannounced visit to Brussels on Thursday before moving on to Paris and he is due to see Merkel in Berlin next week to prepare for a Jan. 30 EU summit.

  Sarkozy will also see Merkel tomorrow amid a disagreement between Paris and Berlin over a planned tax on financial transactions. France has threatened to go it alone if Europe does not agree a tax by the end of the year.

  “We won’t wait for others to agree to put it in place, we’ll do it because we believe in it,” Sarkozy said, saying it is wrong that “financial transactions be the only transactions that are exempt from all taxation.”

  The Paris talks came as IMF managing director Christine Lagarde warned that the IMF could cut its 4 percent global growth forecast as recession threatens the developed world economies battered by the debt crisis.

  Lagarde also said that she did not expect the euro to simply “vanish” this year, although that she was publicly entertaining such a possibility did not encourage markets already dubious about Brussels’ plans.

  “Will Greece quit the eurozone in 2012? The euro partners have affirmed, reaffirmed their determination. We can only support that,” she said.

  Greece has suffered the greatest damage so far of any eurozone economy, with its new -technocratic government forced to seek a bailout from Europe and the IMF and its creditors obliged to accept a “haircut” on their loans.

  IMF chief economist Olivier Blanchard said that banks holding Greek debt could be forced to take even larger writedowns than planned because of Athens’ weaker-than-expected finances.

  Blanchard told US TV channel CNBC that writedowns of about 200 billion euros worth of Greek sovereign debt held by private investors could be more than 50 percent, the level agreed late last year, to ensure Athens can balance its books.
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