Wed, Jul 13, 2011 page10

• EU in crisis talks, but no deadline set

  SELECTIVE: An anonymous official said that the probability of a selective default was looking more likely, as it would remove barriers to getting private investors involved

  • Reuters and AFP, BRUSSELS and HONG KONG
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  Eurozone finance ministers promised longer debt maturities and a more flexible rescue fund to help Greece and other EU debtors, but they set no deadline to act and the threat of contagion to Italy and Spain grew.

  The ministers also declined to rule out the possibility of a selective default by Greece to make its debt mountain more sustainable, despite the European Central Bank’s opposition to any such move, Dutch Finance Minister Jan Kees de Jager said.

  After eight hours of talks on Monday, ministers from the 17 eurozone countries promised new steps “shortly,” but disagreement about the precise nature of those steps barred them from taking immediate action.

  Participants said both a buy-back of Greek debt on the secondary market and a German proposal for a bond swap for longer maturities were under consideration, but a decision was deferred.

  Bond yields in Italy and Spain, the eurozone’s third and fourth-largest economies respectively, remained under pressure yesterday with Italian 10-year bond now above the 5.7 percent area, which bankers say will start putting heavy pressure on Italy’s finances.

  Eurozone officials are hoping concrete decisions on Greece can be taken at another meeting later this month.

  However, despite turmoil on the financial markets, German Finance Minister Wolfgang Schaeubl said there was no hurry.

  “We have time on Greece. The next tranche is due in September,” Schaeuble said. “By then a new program has to be decided.”

  If Italy needed a bailout, the eurozone’s existing rescue mechanism, the European Financial Stability Facility (EFSF), would have insufficient funds to help.

  Asian stock markets slumped yesterday, following a global sell-off as fears grew that the eurozone debt crisis will spread, raising the prospect of a devastating default.

  Tokyo fell 1.43 percent, or 143.61 points, to 9,925.92, Sydney was 1.90 percent, or 86.9 points, lower at 4,495.4 and Seoul tumbled 2.20 percent to 2,109.73.

  Hong Kong tumbled 3.06 percent and Shanghai closed down 1.72 percent.

  European stock markets and the euro slumped in early deals yesterday on growing fears that the eurozone debt crisis will spread despite fresh measures aimed at preventing contagion, traders said.

  In a statement after Monday’s meeting, eurozone ministers provided little fresh reassurance on Greece — prompting stern criticism of their inaction from Greece’s prime minister — but did hint at the prospect of more fundamental steps to come.

  “Ministers stand ready to adopt further measures that will improve the euro area’s systemic capacity to resist contagion risk, including enhancing the flexibility and the scope of the EFSF, lengthening the maturities of the loans and lowering the interest rates, including through a collateral arrangement where appropriate,” they said in a statement.

  The euro fell to a four-month low against the US dollar following the inconclusive meeting and after IMF Managing Director Christine Lagarde said the lender and its EU partners were not yet ready to discuss terms for a second Greek bailout.

  “Nothing should be taken for granted,” she told reporters in Washington.

  However, Lagarde called the turmoil that has raised fears of an Italian meltdown “essentially market driven.”

  She said that while Greece “has done a lot of work” to reduce deficits, “more work needs to be done.”

  The ministers gave no indication that they had broken a stalemate over how to make banks, insurers and other funds share the cost of additional funding for Athens. Germany and others want the private sector to provide about 30 billion euros (US$41.7 billion) in a new package for Greece that could total 110 billion euros.

  However, one national official said they were moving closer to sharing the cost of easing Greece’s debt burden with investors even if credit ratings agencies were to declare a default.

  “I would read this as an acknowledgment by the member states that a selective default is going to be difficult to avoid. It removes an obstacle to the participation of the private sector,” the official said, speaking on condition of anonymity.

  Ministers tasked a working group to propose ways to finance a new multi-year program for Greece, reduce the cost of servicing its 340 billion euro debt — nearly 160 percent of annual output — and improving its sustainability.
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