Share

EU seeks ways out of debt crisis

Brussels - European ministers headed for landmark talks on curbing overspending on Friday amid global turmoil over the eurozone debt crisis and signs of damage to economic recovery.

One uncertainty was removed when the German lower house of parliament, the Bundestag, gave its approval to the massive $1 trillion ( €750bn) EU-IMF debt safety net for EU countries 13 days ago.

Insisting that German approval was vital for market stability, Finance Minister Wolfgang Schaeuble told lawmakers this was because "markets trust it only once it has actually been implemented."

German Chancellor Angela Merkel this week stressed the urgency of the situation on sceptical Germans, saying that the euro was "in danger" and of "incalculable consequences" if it were to fail.

But analysts say perceptions of disagreement within the eurozone, denied by France, are spreading aversion to risk globally and undermining confidence.

Stocks in Europe remained weak after an overnight fall of 3.6% on Wall Street and big falls in Asia - Tokyo dived 2.45% to its lowest level since December 2. European stocks fell by 1.0%-1.5% on Friday.

The euro edged up from a four-year low point but the yen surged as a side effect of widespread risk aversion, causing the Japanese central bank to intervene heavily.

The US Senate approved landmark financial sector reforms on Thursday, but the IMF said that anxious attention was now focused on Europe.


A financial cross roads

A board member of the European Central Bank Ewald Nowotny sought to reassure: "The current euro-dollar exchange rate is well within the historical range of fluctuation and is therefore no special cause for concern," he said.

Berlin newspaper Tagesspiegel said that Europe was at a financial cross roads and mired in deep political confusion.

"The main reason why the euro has been targeted is connected to European discord," it said.

"The recognition that discord and negligent budgeting have weakened the euro ought to lead to an immediate change of tack."

At City Index in London, market strategist Joshua Raymond commented that "the markets are a whole mess of uncertainty and fear right now" and investors were fleeing risky assets everywhere. This meant heavy weakness for stocks, sterling and the euro.

Widespread concern over the crisis was spotlighted by the head of the International Monetary Fund Dominique Strauss-Kahn. "I do not believe that the eurozone is at risk of breaking up," he said late on Thursday.

"The whole world is watching this ... and is losing confidence in Europe," he said.

Against this tense background, EU finance ministers are to hold their first session here on German demands for a radical and draconian new approach to curbing deficit and debt habits, which are at the heart of the crisis.

The approach, backed by France, is based on cross-border policing of draft budgets and fierce penalties for countries breaching the Stability and Growth Pact, intended to ensure sound public finances.

Undermining recovery from the global downturn

On Thursday, French President Nicolas Sarkozy said he intended to freeze public spending for three years and wanted a curb written into the constitution.

Greece and Spain have announced new spending cuts, which provoked demonstrations on Thursday. Portugal has also announced new measures. Italy is expected to do so soon.

Eurozone debt is now showing signs of undermining recovery from the global downturn. Most of Europe has been a deep recession.

Growth across the 16 eurozone countries slowed in May, sending a "worrying" signal that the debt crisis could be crimping activity, research group Markit said in its closely watched purchasing managers' index.

At IHS Global Insight, analyst Howard Archer warned that this could be a "hint that the eurozone debt crisis could be starting to have some dampening impact on economic activity."

The Markit data followed EU data on Thursday showing a sharp drop in consumer confidence in May.

In Germany, the influential Ifo index showed that German business confidence stagnated in May, but commented that "the economic recovery in Germany is robust."

The twists and turns of the crisis have also destabilised interest rate markets.

Fading confidence in the eurozone and a rise in US unemployment also had the effect of pushing the yen up sharply, in turn provoking the Bank of Japan to inject ¥1.1 trillion.

In a sign of the global repercussions, US Treasury Secretary Timothy Geithner is to visit Europe next week for crisis talks.

  - AFP

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
18.88
+0.3%
Rand - Pound
23.85
+0.2%
Rand - Euro
20.39
+0.2%
Rand - Aus dollar
12.33
+0.1%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
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