Share

Geithner urges EU to leverage €440bn fund

Wroclaw - US Treasury Secretary Timothy Geithner pressed eurozone ministers on Friday to leverage their €440bn bailout fund and free up more resources to tackle a two-year-old debt crisis, a senior eurozone official said.
 
Washington set up an emergency fund to support US lenders during the global credit crisis but the official told Reuters Geithner made no reference to the 2008 TALF programme, which sources had said could be a model for the European Financial Stability Facility (EFSF).
 
Analysts say the EFSF must be increased in size to build market confidence that the eurozone debt crisis can be contained.

Germany and others refuse to do so and eurozone national parliaments have yet to ratify new powers agreed for the fund back in July, to allow it to give precautionary loans to countries under attack in the markets and to buy sovereign bonds to prop up struggling states.
 
Market sentiment lifted after the European Central Bank (ECB) and those of Britain, Japan and Switzerland joined forces on Thursday to reintroduce three-month dollar liquidity operations in the fourth quarter.
 
World shares rose half a percent to one-week highs while the euro clung to gains from the previous session on hopes that European policymakers would finally come up with a bold plan to combat a deepening debt crisis.
 
That leaves scope for disappointment, not least because the central bank action denotes real concern about interbank lending drying up. Geithner’s presence at the meeting in Wroclaw underscores the level of US worry.
 
“It is difficult for the eurozone to come up with anything concrete at this stage but they need to keep up the momentum,” said Gavin Friend, market strategist at National Australia Bank.
 
“Geithner gets how important all of this is... Markets understand it will all take time to work through but they want to hear that the discussions are making good progress, that the Europeans are receptive to what Geithner has to say.”

Geithner gave no details of how such leveraging could be done, the eurozone official said, perhaps wary of European sensitivities about Washington being too prescriptive.

“We can always discuss with our American colleagues. I’d like to hear how the United States will reduce its deficits and... its debt,” Belgian Finance Minister Didier Reynders told reporters.

Leveraging the EFSF would be a radical new approach and could skirt objections to increasing the size of the fund outright.

One analyst said EFSF money could be used to guarantee a portion of potential losses on eurozone sovereign debt bought by the ECB, providing more purchasing clout than if it just bought the bonds in the secondary market with money on hand.


“It is possible to leverage the EFSF so as to expand its headline capacity to support sovereign bonds, for example through the use of partial guarantees against first losses,” said Sony Kapoor, managing director of think tank Re-Define.
 
One difficulty is that leveraging a fund underwritten by guarantees from eurozone member states could increase liabilities across the board, putting pressure on the triple-A credit rating of countries such as France.

Collateral conundrum

With most economists saying a Greek default is inevitable at some point and the much larger Italian economy not out of the firing line despite parliament’s approval of a new austerity package this week, the pressure is on to act.
 
Europe and the United States face 10 years of pain if a global solution for the eurozone debt crisis is not found soon, said former British premier Gordon Brown, one of the architects of the response to the world financial crisis of 2007-2009.

“Unless there is global coordination... I foresee 10 years of low growth in Europe and America, I foresee very high levels of unemployment and I foresee a failure of coordination that will lead in the end to greater protectionism,” Brown said at the World Economic Forum in Dalian.

Germany continues to voice opposition to the issuance of common eurozone bonds to pool risk.
And a row over the terms of a second Greek bailout - with some countries such as Finland demanding collateral in return for new loans - is also unresolved.
 
“I think we are going to negotiate about it (collateral) but unfortunately I don’t see that we can find a solution tonight,” Finnish Finance Minister Jutta Urpilainen told reporters. “We continue to negotiate; I’m optimistic that we can find a solution that everybody can accept.”

Collateral is a must for Helsinki but officials say a solution is coming together which will make it so expensive to demand that other eurozone countries shy away.

Policymakers expect international lenders to be able to recommend by the end of the month releasing a vital next tranche of aid to Greece, warding off the threat of an imminent default.

While that may keep Greece afloat until it gets a second bailout package from the eurozone, its finance minister said the country would remain mired in recession through 2012, the fourth year in a row, a contraction that is only likely to fuel popular outrage at the austerity drive.

“The intention is to meet the fiscal targets for this year and next year without delay, without exception and deviations,” Greek Finance Minister Evangelos Venizelos told reporters in Wroclaw.
 
On a conference call with Greek Prime Minister George Papandreou on Wednesday, German Chancellor Angela Merkel and French President Nicolas Sarkozy voiced their support for keeping Greece in the eurozone and continuing financial assistance provided it sticks strictly to austerity measures to meet its fiscal targets.

Commenting on a debt swap plan that is a key part of a planned second bailout for Athens, the eurozone official said it would not be a big problem if fewer than the targeted 90% of private investors took part in the scheme. Venizelos said the bond exchange would be implemented.
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.2%
Rand - Pound
23.91
-0.1%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.2%
Platinum
910.50
+1.5%
Palladium
1,011.50
+1.0%
Gold
2,221.35
+1.2%
Silver
24.87
+0.9%
Brent-ruolie
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders