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UK refuses to back euro plan

May 09 2010 16:04

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London - European ministers were gathered in Brussels on Sunday for emergency talks, vowing to do "whatever is necessary" to prop up a debt-saddled euro before markets reopen.

But the UK refused to underwrite a new crisis fund under discussion at the talks.

The bloc wants to borrow more than $75bn based on unused, common EU funds, to fill a kind of "bank" that can be used to bail out troubled eurozone economies.

An EU diplomat told AFP that the fund could additionally be backed by a "gesture" from their central bankers, that diplomats said translates into a mini-European version of the International Monetary Fund.

UK finance Minister Alistair Darling said on Sunday it was important to do everything possible to stabilise the financial markets, but his country would not provide support for the euro.

"We need to show again today that by acting together we can stabilise the situation, we do not want to jeopardise the recovery that is slowly taking place. And we will play our part in that," he told reporters.

"But when it comes to supporting the euro, obviously that is for the eurozone countries."

Britain, a member of the EU, has not joined the euro single currency.

Central bankers from around the world also met on Sunday in Switzerland, with talks on monetary reform set to be overshadowed by the threat of Greece's debt woes ballooning into global chaos.

The talks, stretching over three days in Basel and Zurich, were meant to focus on longer-term issues including systemic changes following the crisis that has dogged the world economy since 2008.

But participants indicated that the bankers were starting with emergency sittings on measures to stop Greece's problems from spreading after the European single currency plunged and world stocks suffered.

"There are some meetings going on at the moment... the meeting on the global economy is happening tomorrow," said a participant at the initial talks at the Bank for International Settlements in Basel, without elaborating.

The bi-monthly gathering at the BIS will go on until Monday.

Central bankers are then set to head to Zurich for a conference on the international monetary system organised by the IMF and Swiss National Bank on Tuesday.

Amid the Greek debt crisis, central banks, in particular the European Central Bank, have come once again under the spotlight.

Complicated

Economist Jan-Egbert Sturm told AFP that central bankers are now not only having to deal with the puzzle of unwinding extraordinary measures adopted during the global financial crisis, but also the crisis sparked by Greek debt.

"What we have seen in the financial crisis was that central banks were forced to create new instruments to deal with the crisis. It is uncertain how these new instruments will be dealt with," he said.

The situation in the eurozone "makes it even more complicated on different fronts," added Sturm, who heads the Centre for Economic Research at the Swiss Federal Institute of Technology in Zurich.

Central banks had pumped extraordinary sums of liquidity into the financial system and pushed interest rates down to record lows as they seek to stimulate lending and economic activity.

With most economies emerging from recession, they have begun withdrawing these measures, and the focus has turned to longer-term issues surrounding the monetary system that were exposed by the financial crisis.

Among them is the question of instabilities in the system generated by the US dollar's role as the world's dominant reserve, an issue to be tabled at the IMF meeting.

However, the Greek crisis in the past week has taken on global proportions, with implications felt as far as the United States and Asia.

Japan's central bank on Friday moved to calm markets by pumping in more than $20bn in liquidity, helping in part to curb the yen's rise.

The falling euro was also taking its toll on key trading partners of the bloc, such as Switzerland, whose currency rose to a historic high against the euro, raising fears that exports would be hit.

Pressure is once again rising for central banks, particularly the ECB, to act.

 

- AFP

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