Italy, France meet as eurozone under pressure again
PARIS,7, Jan,AFP
The eurozone’s debt-wracked economies came under renewed pressure on
Friday as bad economic data undermined leaders’ attempts to reassure
markets that an end to the crisis is in sight.
Italy’s Prime Minister Mario Monti met France’s President Nicolas
Sarkozy in Paris as the single currency bloc’s second and third biggest
economies sought to head off doubts about their deficit reduction plans.
The pair announced a mini-summit with Germany’s Chancellor Angela
Merkel on January 23 but also revealed a split in Europe’s position,
with France warning that it may go it alone on a financial transaction
tax. European governments and markets were also confronted with a raft
of gloomy economic figures from Brussels — unemployment stuck at a
record high, retail sales down and consumer and business confidence
sinking.
The eurozone’s economy contracted in the last quarter of 2011 and
will likely shrink again in the first quarter of the year, putting it in
recession, analysts said. New US figures showed unemployment there
falling to 8.5 percent but in Europe the picture was bleak. Eurozone
unemployment remained at a record 10.3 percent for the second month
running in November.
The combination sent the euro plunging briefly under $1.27 for first
time since September 2010.
“Today’s batch of eurozone data has recession written all over it,”
said ING analyst Martin van Vliet.
Nervous European banks parked 455 billion euros ($582 billion) in the
safe haven of the European Central Bank overnight — a new record
preferring to earn low interest rather than take the risk of lending to
each other.
After a brief respite from bad headlines over the New Year holiday
period, the eurozone debt crisis has resurfaced with a vengeance,
driving down the single currency and threatening Italy and Spain.
France has yet to face the same soaring interest rates as its
southern neighbours but its Triple-A debt rating is under threat of a
downgrade, and bond markets are quickly losing faith in EU financial
reform plans.
“It’s not France being targeted, it’s 15 of the 17 members of the
eurozone,” ratings agency Standard and Poor’s chief European economist
Jean-Michel Six told the daily Le Parisien when asked about France’s
Triple-A.
“The problem more than anything is the way the eurozone functions,
which leaves a lot to be desired,” he said.
Monti rattled markets with an unannounced visit to Brussels on
Thursday before moving on to Paris and he is due to see Germany’s
Chancellor Angela Merkel in Berlin next week to prepare for a January 30
EU summit.
Sarkozy will also see Merkel on Monday amid a disagreement between
Paris and Berlin over a planned tax on financial transactions. France
has threatened to go it alone if Europe does not agree a tax by the end
of the year.
Both Monti and a German government spokesman urged France not to move
ahead of its partners on the issue but Sarkozy was adamant.
“We won’t wait for others to agree to put it in place, we’ll do it
because we believe in it,” Sarkozy said, saying it is wrong that
“financial transactions be the only transactions that are exempt from
all taxation.”
The Paris talks came as International Monetary Fund head Christine
Lagarde warned that the IMF could cut its 4.0 percent global growth
forecast as recession threatens the developed world economies battered
by the debt crisis.
Lagarde also said that she did not expect the euro to simply “vanish”
in 2012 although the fact that she was publicly entertaining such a
possibility did not encourage markets already dubious about Brussels’
plans.
“Will Greece quit the euro zone in 2012? The euro partners have
affirmed, reaffirmed their determination. We can only support that,” she
said.
Greece has suffered the greatest damage so far of any eurozone
economy, with its new technocratic government forced to seek a bail-out
from Europe and the IMF and its creditors obliged to accept a “haircut”
on their loans.
The IMF’s top economist said that banks holding Greek debt could be
forced to take even larger writedowns than planned because of Athens’
weaker-than-expected finances.
Olivier Blanchard told US television channel CNBC that writedowns of
some 200 billion euros ($255 billion dollars) worth of Greek sovereign
debt held by private investors could be more than 50 percent, the level
agreed late last year, to ensure Athens can balance its books.
Greek protesters rained boos and shouted abuse at their leaders
Friday during ceremonies around the country which to celebrate the
Epiphany.
In more bad news, the European Commission has rejected Belgium’s 2012
budget as overly optimistic and is demanding it shave off an extra 1.2
to 2.0 billion euros.
The ratings agency Fitch on Friday downgraded non-euro member Hungary
to junk BB+ status and warned its unorthodox policy measures made
reaching an aid deal with the IMF more uncertain. Hungary is a
relatively small economy but its woes could undermine richer neighbours
like Austria, threatening its Triple-A rating.
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