The eurozone is under immense pressure on all fronts to deal with its spreading debt, as a rift on rescue strategies and even on the need for a crisis summit deepened yesterday.
In extraordinarily outspoken terms, the next head of the European Central Bank issued a blunt warning that the solvency of eurozone countries should not be taken for granted, while Greece and Spain have attacked in equally blunt terms a German-led drive for private investors to shoulder part of the costs of a second rescue for Greece, widely expected to trigger a default status on Greek debt.
This critical matter, opposed by the European Central Bank, is a factor behind turmoil on financial markets and has helped put Italy and Spain in the eurozone spotlight.
Markets steadied yesterday, but Irish debt was hit by a new downgrade to junk status.
Italian central bank chief Mario Draghi, the future head of the ECB, warned about solvency.
“The solvency of sovereign states is no longer to be taken for granted, but has to be earned in the field with high and sustainable growth, which is only possible with public accounts in order,” Draghi said in a speech. “The credibility credit given by stronger eurozone countries has expired. We have to grow without relying on it. Those structural reforms we have been calling for for years are now even more essential.”
With debt contagion engulfing Italy and Spain, the eurozone’s third and fourth-biggest economies, there was diplomatic talk of an emergency eurozone summit as early as tomorrow, but disagreement on this was made public by the two pivotal eurozone and EU countries, Germany and France.
France backed calls for a summit of the 17 eurozone leaders, but Germany backed away, saying German Chancellor Angela Merkel first wanted work on a second bailout of Greece to “continue at full speed.”
Ireland was the latest eurozone straggler to be hit by a credit ratings agency, as Moody’s Investors Service downgraded its debt to “junk” status on Tuesday and warned it may also need a second bailout in 2013.
Irish borrowing soared to its highest levels since Dublin joined the euro, after similar spikes in interest rates hit Italy and Spain in recent days.
Eurozone finance ministers pledged after marathon eight-hour talks late on Monday to strengthen the size and scope of a multibillion euro fund set up in the aftermath of Greece’s rescue in May last year.
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