Europe delays major debt decisions for 10 days BRUSSELS (AP) - Under pressure to deliver shock treatment to the ailing euro, European finance ministers failed to come up with a plan for European countries to spend within their means. Such a plan is needed before Europe's central bank and the International Monetary Fund consider stepping in to stem an escalating threat to the global economy. The ministers delayed action on major financial issues - such as the concept of a closer fiscal union that would guarantee more budgetary discipline - until their bosses meet next week in Brussels. Stock markets fell Wednesday as a top EU official conceded that the future of the euro now rests heavily on the meeting of European heads of state on Dec. 9. Stock markets had risen this week on hopes that intense bond market pressure would finally force the eurozone into quicker and more robust action. "We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union," EU Monetary Affairs Commissioner Olli Rehn said, adding: "There is no one single silver bullet that will get us out of this crisis." (AP) Full Image At a meeting Tuesday night, finance ministers for the 17 countries that use the euro handed Greece a promised euro8 billion ($10.7 billion) rescue loan to fend off its immediate cash crisis and promised to increase the firepower of a fund to help bail out ailing eurozone countries. But they failed to increase the firepower of a European bailout fund to euro1 trillion ($1.3 trillion), as they had hoped to do. "It will be very difficult to reach something in the region of a trillion. Maybe half of that," said Dutch Finance Minister Jan Kees de Jager. Klaus Regling, head of the bailout fund, tried to be upbeat, saying the ministers had committed to increasing its size from its current euro440 billion ($587 billion) but refusing to give a specific size. He assured reporters it was more than big enough to deal with Europe's immediate debt problems. "To be clear, we do not expect investors to commit large amounts of money during the next few days or weeks," Regling said. "Leverage is a process over time." The ministers did agree to use the bailout fund to offer financial protection of 20-30 percent to investors who buy new bonds from troubled eurozone nations. "We made important progress on a number of fronts," eurozone chief Jean-Claude Juncker insisted late Tuesday. "This shows our complete determination to do whatever it takes to safeguard the financial stability of the euro." Wednesday's meeting in Brussels has brought in the 10 non-euro finance ministers from the 27-nation EU, who have been pressing hard for a swift solution for fear that their economies will suffer. Sweden's Anders Borg said there was no more time to waste and that the markets don't provide "any honeymoons" for any countries that stray from fiscal austerity. He stressed that Spain and Italy need to "take out all the skeletons" from their financial closets and implement budgetary belt tightening measures. Many economists say the 17 nations that use the euro have little choice but to back proposals for much closer coordination of their spending and budget policies. Though such a change would reduce their ability to run budget deficits, it could potentially pave the way for much more aggressive support from the European Central Bank. "If the eurozone is to survive, there needs to be more fiscal union," said Eswar Prasad, an economics professor at Cornell University in the state of New York. For struggling economies, this might be the necessary price of survival. With such discipline in place, the ECB could then agree to make major purchases of government bonds from Europe's troubled countries. Doing so could help lower their borrowing costs and enable them to finance their debts. For now, the ECB has been reluctant to take such a frontline role, arguing that it's up to governments to sort out their fiscal mess. It's voiced worries that a big bond-buying program could allow economically reckless countries off the hook for painful spending cuts and tax increases. But a tighter fiscal union could reassure the ECB and lead it to act more forcefully, said Jacob Funk Kirkegaard, a fellow at the Peterson Institute for International Economics. The alternative could be a default by Greece, or even Italy, and a break-up of the eurozone. That could spark chaos, forcing some or all the countries to return to their own individual currencies. A default could also cause lending to seize up worldwide. Some European banks holding large amounts of government debt would likely collapse. As credit dried up, other banks around the world would probably hoard cash. The credit crunch could push European countries into a deep recession. A European downturn would also slow the flow of exports to Europe from the United States and Asia and weaken their economies. U.S. stock markets would likely fall, reducing household wealth and consumer spending and further choking growth. Many economists say the threat of default means the International Monetary Fund might end up contributing to a bailout fund. An IMF spokesman denied Tuesday that the international lending group is consulting with the Italian or Spanish governments. But the IMF could work with institutions like the ECB, Cornell's Prasad said. Funneling money through the IMF would be more politically palatable for the ECB than directly aiding individual countries. Still, the IMF has only about $390 billion available to lend. That wouldn't be anywhere near enough to rescue Italy, which has $1.2 trillion in debt. "In the short term, there is only the ECB," Kirkegaard said. --- Associated Press writers contributing to this report included Angela Charlton in Paris, Melissa Eddy and Juergen Baetz in Berlin, Raf Casert and Greg Keller in Brussels and Christopher S. Rugaber in Washington. http://apnews.myway.com/article/20111130/D9RB1GAO3.html Are the waiting to see the effect of what the news of the Fed/central banks' assistance has on the public? Perhaps, they want to see if the trial balloon survives. _
EU monetary chief sees 10 days to rescue euro zone (Reuters) - Europe faces a crucial 10 days to save the euro zone after agreeing to ramp up the firepower of its bailout fund but acknowledging it may have to turn to the International Monetary Fund for more help to avert financial disaster. "We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union," Economic and Monetary Affairs Commissioner Olli Rehn said on Wednesday as EU finance ministers met. Euro zone ministers agreed on Tuesday night on detailed plans to leverage the European Financial Stability Mechanism (EFSF), but could not say by how much because of rapidly worsening market conditions, prompting them to look to the IMF. Italian and Spanish bond yields resumed their inexorable climb towards unsustainable levels on Wednesday, as markets assessed the rescue fund boost as inadequate. Stocks fell and the euro weakened after ratings agency Standard & Poor's hit some of the world's leading banks with a credit downgrade. "It must also be remembered that the EFSF is already funding at very wide (borrowing) levels over Germany, struggled in its last auction to raise the required funds and would have its rating put under severe pressure by any rating downgrade of France," Rabobank strategists said in a note. "This must call into question any plans related to the EFSF. It is yesterday's solution and the market has simply moved on." Two years into Europe's sovereign debt crisis, investors are fleeing the euro zone bond market, European banks are dumping government debt, south European banks are bleeding deposits and a recession looms, fuelling doubts about the survival of the single currency. "We are now looking at a true financial crisis -- that is a broad-based disruption in financial markets," Christian Noyer, France's central bank governor and a governing council member of the European Central Bank, told a conference in Singapore. The 17-nation Eurogroup adopted detailed plans to insure the first 20-30 percent of new bond issues for countries having funding difficulties and to create co-investment funds to attract foreign investors to buy euro zone government bonds. Both schemes would be operational by January with about 250 billion euros from the euro zone's EFSF bailout fund available to leverage after funding a second rescue program for Greece, Eurogroup chairman Jean-Claude Juncker said. The aim was for the IMF to match and support the new firepower of the EFSF, Juncker told a news conference. But with China and other major sovereign funds cautious about investing more in euro zone debt, EFSF chief Klaus Regling said he did not expect investors to commit major amounts to the leveraging options in the next days or weeks, and he could not put a figure on the final size of the leveraged fund. "It is really not possible to give one number for leveraging because it is a process. We will not give out a hundred billion next month, we will need money as we go along," Regling said. RADICAL MEASURES? Most analysts agree that only more radical measures such as massive intervention by the ECB to buy government bonds directly or indirectly can staunch the crisis. The prospects of drawing the IMF more deeply into supporting the euro zone are uncertain. Several big economies are skeptical of European calls for more resources for the global lender. The United States, Japan and other Asian states are hesitant to chip in unless Europe commits to first use its own resources to fix the problem and peripheral euro zone states map out more concrete steps on fiscal and economic reforms. "Nobody wants to spend money on something they doubt would work," a G20 official said. "That goes not only for Europe but for any other country outside Europe. The threshold for seeking IMF help is quite high. Those seeking help need to be willing to give up some of their jurisdiction on fiscal policy and willing to undergo painful reform. Mere pledges and speeches won't do." New Italian Prime Minister Mario Monti outlined his plans to the euro zone ministers and was told he would have to take extra deficit cutting measures beyond an austerity plan already adopted to meet its balance budget promise in 2013. Italian bond yields are now above the levels at which Greece, Ireland and Portugal were forced to apply for EU/IMF bailouts, and Rome has a wall of issuance due from late January to roll over maturing debt. GREECE GETS CASH The Eurogroup ministers agreed to release their portion of an 8 billion euro aid payment to Greece, the sixth installment of 110 billion euros of EU/IMF loans agreed last year and necessary to help Athens stave off the immediate threat of default. Juncker said the money would be released by mid-December, once the IMF signs off on its portion early next month. G20 leaders promised this month to boost the agency's warchest. However, another G20 source said policymakers had made no progress since then in efforts to boost IMF resources, which at current levels may not be sufficient to overcome the crisis. EU sources said one option being explored is for euro system central banks to lend to the IMF so it can in turn lend to Italy and Spain while applying IMF borrowing conditions. "We will discuss with the ECB. The ECB is an independent institution, so we will put on the table some proposals and after that it is for the ECB to take the decision," Belgian Finance Minister Didier Reynders told reporters. With Germany opposed to the idea of the ECB providing liquidity to the EFSF or acting as a lender of last resort, the euro zone needs a way of calming markets and fast. The ECB shows no sign yet of responding to widespread calls to massively increase its bond-buying although EU officials said it may have to shift, even if the EFSF was bolstered by IMF help. "Despite the attempt to leverage the EFSF, I would agree that the IMF and European Central Bank have to be in the boat," one euro zone source told Reuters. A Reuters poll of economists showed a 40 percent chance of the ECB stepping up purchases with freshly printed money within six months, something it has opposed so far. The poll forecast a 60 percent chance of an ECB rate cut to 1.0 percent next week and a big majority of economists said they expect the central bank to announce new long-term liquidity tenders to help keep banks afloat at its next meeting on Dec 8. EU powerhouse Germany has pinned its efforts on a drive for closer fiscal integration among euro zone members with coercive powers to veto euro zone members' budgets that breach EU rules. Chancellor Angela Merkel told lawmakers she would not make a deal at a December 9 European Union summit to drop resistance to joint euro zone bonds in exchange for progress on strengthening fiscal rules, MPs quoted her as saying. She told a closed-door meeting Europe was "a long way from euro bonds," suggesting they may not be ruled out forever. (Additional reporting by Marius Zaharia in London, Erik Kirschbaum in Berlin, Robin Emmott and John O'Donnell in Brussels, Saeed Azhar and Kevin Lim in Singapore; Writing by Paul Taylor/Mike Peacock; Editing by Neil Fullick) http://www.reuters.com/article/2011/11/30/us-eurozone-idUSTRE7AR0P320111130
