Tue, Jul 12, 2011 page10

• EU finance chiefs meet for Greece talks

  • Reuters, BRUSSELS
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  The EU’s top finance officials were to hold critical talks on Greece and the worsening situation in Italy yesterday, with concern about the risk of further sovereign debt contagion acute.

  Herman Van Rompuy, the president of the European Council, was to meet European Central Bank (ECB) president Jean-Claude Trichet and Jean-Claude Juncker, the chairman of the Eurogroup, for talks in Brussels, ahead of a meeting of the 17 eurozone finance ministers later yesterday.

  Van Rompuy’s spokesman -described the gathering, which was also to include European Commission President Jose Manuel Barroso and the EU’s economic and monetary affairs commissioner Olli Rehn, as a “coordination, not a crisis meeting,” and said Italy would not be on the agenda.

  However, senior EU sources said it would be impossible not to discuss the situation in Italy, the eurozone’s third-largest economy, following a large sell-off in Italian assets that the Italian media have dubbed “black Friday.”

  Shares in Italy’s biggest bank, Unicredit Spa, gyrated wildly -yesterday after losing 7.9 percent on Friday, partly because of worries about the results of stress tests on the health of European banks that will be released on Friday. Other banks’ stocks also fell heavily.

  The sell-off has increased fears that Italy, with the highest sovereign debt ratio relative to GDP in the eurozone after Greece, could be next to suffer in the crisis. If that comes to pass, the eurozone’s existing rescue mechanism, the EFSF, would have insufficient funds to help.

  The market pressure is due partly to Italy’s high sovereign debt and sluggish economy, but also due to concern that Italian Prime Minister Silvio Berlusconi may be trying to push out his long-time finance minister, Giulio Tremonti, who has promoted deep spending cuts to control the budget deficit.

  “We can’t go on for many more days like Friday,” a senior ECB official said. “We’re very worried about Italy.”

  German newspaper Die Welt quoted an unnamed ECB source as saying that the EFSF may have to be doubled in size to 1.5 trillion euros (US$2.1 trillion) if it is to be capable of coming to the aid of Italy.

  Yesterday’s gathering of eurozone finance ministers was to -focus on a second bailout package for Greece and the need to secure the private sector’s involvement in the assistance program, which is expected to total 110 billion euros.

  Germany, the Netherlands, Austria and Finland are determined that banks, insurers and other private holders of Greek government bonds should bear some of the costs of helping Athens — up to 30 billion euros of the total package.

  However, after more than two weeks of negotiations with bankers represented by the Institute of International Finance, a lobby group, there has been next to no progress on agreeing a formula acceptable to all sides.

  Senior eurozone officials worry that any further delay in putting together a second package — which Greece wants by early September — could further poison investors’ confidence in weak economies around the region, prompting more contagion.

  “We need to move on this in the next couple of weeks. It’s not a case of waiting until late August or early September as Germany is saying. That’s too late and markets will make us pay for it,” a top eurozone official said on Saturday.

  German officials say they too want to put together the second Greek bailout as quickly as possible, but the private sector’s contribution is proving to be a major sticking point.
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