VARIOUS / FILE: Economists fear for euro ahead of summit, ministers vow to defend currency
- Title: VARIOUS / FILE: Economists fear for euro ahead of summit, ministers vow to defend currency
- Date: 21st July 2011
- Summary: PARIS, FRANCE (JULY 20, 2011) (REUTERS) ERIC CHANEY, CHIEF ECONOMIST AXA GROUP, WALKING IN NEWSROOM (SOUNDBITE) (French) CHIEF ECONOMIST AXA GROUP, ERIC CHANEY, SAYING: "I think the euro is in danger. The differences between the political leaders of the various countries -- France, Germany, -- the European Central Bank, the private sector, are not resolved at this stage. And those differences will have to be resolved. If not the markets will conclude that the euro is likely to be destroyed or degraded. So there is a danger. But generally, it is in these situations of extreme danger that European leaders, not having the choice, make the political steps that will harden the system. But we are before that stage, not yet there. So today, the danger is real." ERIC CHANEY, CHIEF ECONOMIST AXA GROUP, TALKING TO JOURNALIST (SOUNDBITE) (English) CHIEF ECONOMIST AXA GROUP, ERIC CHANEY, SAYING: "I think on the first item, to provide a new financing for Greece, the summit will probably provide the blueprint, with some participation of the private sector -- the banks and insurance companies which are holding Greek debt and a new loan by EU countries. And in terms of not solving but helping Greece, that will be good news. I'm afraid that on the second item, how to convince the markets that the euro zone is a safe place, the summit will be disappointing." BRUSSELS, BELGIUM (JULY 19, 2011) (REUTERS) (SOUNDBITE) (English) ING SENIOR ECONOMIST, CARSTEN BRZESKI SAYING: "Now I think politicians have realised that it doesn't work. They sort of, all strategies applied did not really avoid contagion. If you look at Italy, look at spreads in Spain, so the spreads are going up. Calm has not been restored on financial markets." BRZESKI TALKING WITH JOURNALIST (SOUNDBITE) (English) ING SENIOR ECONOMIST, CARSTEN BRZESKI SAYING: "Only addressing Greece will not be enough and it will not stop the problem. Only if, so a second package for Greece is good, will buy time again. But if this package includes the private sector involvement and therefore some kind of debt restructuring bond buy-back whatsoever then the rules have to be so clear that they can also be applied to other countries. I think this is really a key here." FRANKFURT, GERMANY (RECENT) (REUTERS) INTERIOR OF FRANKFURT STOCK EXCHANGE TICKER IN FRANKFURT STOCK EXCHANGE TRADERS WORKING IN STOCK EXCHANGE COMPUTER SCREEN SHOWING PLUMMETING MARKET
- Reuters ID: LVA3JT5VA7K5YKP4W7T6NFLMDJOI
- Location: Belgium, Germany, Greece, France
- Country: Greece
- Duration: 00:02:30
- Aspect Ratio:
- Topics: Economy
- Story Text: Leaders of the 17 euro zone countries, plus European central bankers and commissioners will hold an emergency summit on Thursday (July 21) in an effort to secure sufficient funding for Greece and avoid a potential default.
The urgency to lock down a second bailout plan for Greece worth around 120 billion euros comes partially after Italian and Spanish bond yields rose sharply last week and topped six percent on Monday, showing how easily contagion from Greek public finances can spread.
French Finance Minister Francois Baroin pledged that everything would be done to save Europe's single currency but economists warned that the euro could be in danger.
"Whatever happens, Europe, the heads of state, the governments, the European institutions, the European Union, the European Central Bank will guarantee the stability of the euro zone," Baroin told France Info radio.
But leading economists said there was a lot at stake.
"I think the euro is in danger. The differences between the political leaders of the various countries -- France, Germany, -- the European Central Bank, the private sector, are not resolved at this stage," said Eric Chaney, Chief Economist at Axa Group in Paris.
"Those differences will have to be resolved. If not the markets will conclude that the euro is likely to be destroyed or degraded. So there is a danger. But generally, it is in these situations of extreme danger that European leaders, not having the choice, make the political steps that will harden the system. But we are before that stage, not yet there. So today, the danger is real," he added.
In Brussels, ING senior economist Carsten Brzeski said: "all strategies applied did not really avoid contagion. If you look at Italy, look at spreads in Spain, so the spreads are going up. Calm has not been restored on financial markets."
But the complexity of the problem and conflicting interests of the public and private sectors made a deal difficult. Not even solutions which would entail a temporary downgrade of Greek bonds to a selective default rating were now excluded.
This has been taboo for finance ministers in the past, and still is for the European Central Bank, but officials said that while policymakers would prefer to avoid such a downgrade, it no longer limited the options under consideration.
European officials are considering three options for private sector involvement in a second Greek bailout, including the repurchase of sovereign debt on the market, a tax on the financial sector, or the rollover of bonds.
While the IMF said private sector participation in euro zone bailouts was essential, Fund officials declined to say which if any of these options was preferable.
Germany, the EU's biggest economy, is reluctant to support Thursday's summit unless a solution is guaranteed.
German Chancellor Angela Merkel doused expectations of any comprehensive solution to Greece's debt crisis at an emergency euro zone summit on Thursday.
The German political leader told a joint news conference with Russian President Dmitry Medvedev on Tuesday that no single 'spectacular' event can solve the Greek debt crisis.
The Greek parliament passed a second austerity bill on June 30, opening the way for the EU and IMF to release a 12 billion euro (17 billion U.S. dollar) loan instalment which Athens urgently needs to stave off bankruptcy.
The vote on detailed measures to implement 28 billion euros in spending cuts, tax increases and privatisations passed without any of the wild street battles which marred Wednesday's vote on an initial austerity bill.
Release of the instalment by the IMF averted immediate default but Greece is unable to borrow on financial markets and still needs a second bailout, roughly equivalent to the 110 billion euro package agreed in May 2010, to keep going until 2014.
The Socialist government of Prime Minister Georgios Papandreou, whose PASOK party trails the conservative opposition in opinion polls, will also face major problems turning the deeply unpopular austerity measures into action.
The endemic problem of tax evasion and the need for swift action to begin a selloff of state assets will be among the top priorities, bringing the risk of more confrontation with powerful public sector unions which oppose privatisation.
The government, which halted privatisation when it came to power, must sell off 5 billion euros in assets this year or risk missing the targets under its EU/IMF programme, which would cut off funding again.
The vote at the parliament triggered two days of clashes between stone-throwing youths and riot police, who fired clouds of tear gas from behind steel crash barriers to keep rioters at bay.
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