Sun, Sep 25, 2011 page11

• Europe strengthens debt crisis defenses

  PRESSURE MOUNTS: Eurozone nations were shifting their focus to how they might safeguard the banks, which could need recapitalization, in case of a Greek default

  • Reuters, Washington
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  European policymakers are quickening their preparations to cope with an escalation of the region’s debt crisis as talk of a possible Greek default gained pace on Friday.

  Finance chiefs from around the world have turned up the heat on Europe to do more to prevent Greece’s debt crisis from infecting other eurozone countries and the world economy.

  Concern now appeared to be turning toward safeguarding the banking system more than rescuing Greece, as international lenders were increasingly losing patience with Athens consistently missing fiscal and reform targets.

  “They have six weeks to resolve this crisis,” British Chancellor of the Exchequer George Osborne said, speaking on the sidelines of semi-annual policy discussions in Washington.

  Eurozone leaders need to have the situation under control by the time the G20 economies meet in France in November, he said.

  World stock markets, which had plunged to a 14-month low on fears about the scale of the eurozone crisis, steadied after European Central Bank (ECB) officials said they would use more firepower to help the banking system through the crisis.

  Pressure is growing on European governments for a recapitalization of the region’s banks to strengthen them in the event of a Greek default.

  At the same time, European policy-makers seemed to be warming to the idea of giving more muscle to their bailout fund which would be tested in the event of a Greek debt default.

  Greek Finance Minister Evangelos Venizelos was quoted by two newspapers as saying an orderly default with a 50 percent haircut for bondholders was one way to resolve the heavily indebted eurozone nation’s cash crunch.

  Greece is in tense talks with the IMF and European authorities, known as the troika, to secure a new 8 billion euro (US$11 billion) installment of its rescue package to avoid bankruptcy next month in return for austerity measures.

  The Greek finance minister is scheduled to meet the head of the IMF today.

  Negotiators have expressed frustration at what they say is Greece’s slow pace.

  “The troika officials said they were going over again measures they had agreed to months before. They said they had a sense of deja vu,” a source close to the inspectors said on condition of anonymity.

  After next month’s loan payment, which is widely expected to be made, the next installment is due in December.

  European Central Bank President Jean-Claude Trichet urged authorities to take decisive action, saying risks to the financial system had “increased considerably.”

  Lawrence Summers, former US Treasury secretary, gave a sombre assessment of the dangers facing the world economy, including the US economy slowing to almost a standstill.

  “This is the 20th annual meeting [of the IMF and World Bank] I’ve been privileged to attend. There has not been a prior meeting at which matters have had more gravity and at which I have been more concerned about the future of the global economy,” Summers told a discussion panel.

  As European policymakers looked to piece together a bolder crisis-fighting strategy, investors took some relief as three officials said the ECB could revive its one-year liquidity lines to shore up banks.

  “I think it might be advisable to think about reintroducing this approach,” ECB governing council member Ewald Nowotny said.

  The IMF, which has been pressing aggressively for a recapitalization of Europe’s banks, reckons the debt crisis has increased their risk exposure by 300 billion euros.

  In a sign Europe was coming to terms with the idea of a recapitalization, France’s top market regulator said 15 to 20 banks needed extra capital, although no French ones “at this stage.”

  The growing talk of a Greek default met with stiff opposition from German Chancellor Angela Merkel. She told a meeting of her political party members that was not an option for her because it might trigger a domino effect in other struggling economies.

  “The damage would be impossible to predict,” Merkel said.
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