G-7 Finance Chiefs Vow to Support Banks
Euro Crisis Draws G-7 Fire as Merkel Mulls Bank Aid
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German Chancellor Angela Merkel arrives to speak during debates over the federal budget at the Bundestag on September 7, 2011 in Berlin.
German Chancellor Angela Merkel arrives to speak during debates over the federal budget at the Bundestag on September 7, 2011 in Berlin. Photographer: Sean Gallup/Getty Images
Sept. 9 (Bloomberg) -- Group of Seven finance chiefs meeting in Marseille, France, agreed that central banks will “provide liquidity to banks as required” to maintain the resilience of the banking system and financial markets. Bloomberg's Peter Cook reports on Bloomberg Television's "Taking Stock." Pimm Fox also speaks. (Source: Bloomberg)
Sept. 9 (Bloomberg) -- Axel Merk, president and chief investment officer of Merk Investments LLC, talks about his decision to sell the euro. Merk also discusses Greece's sovereign debt crisis. He speaks with Matt Miller, Carol Massar and Peter Cook on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Sept. 9 (Bloomberg) -- Richard Lacaille, chief investment officer at State Street Global Advisors, talks about Juergen Stark's resignation from the European Central Bank’s Executive Board. Lacaille also discusses the euro-area debt crisis and investment strategies. He talks with Andrea Catherwood on Bloomberg Television's "Last Word." (Source: Bloomberg)
Euro Crisis Draws G-7 Fire as Stark Quits, Merkel Mulls Bank
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Juergen Stark, executive board member of the European Central Bank (ECB) speaks at a seminar in Hong Kong on April 12, 2011.
Juergen Stark, executive board member of the European Central Bank (ECB) speaks at a seminar in Hong Kong on April 12, 2011. Photographer: Jerome Favre/Bloomberg
Finance Chiefs Vow to Back Banks
Chris Ratcliffe/Bloomberg
Finance ministers and central bankers from the Group of Seven nations pose for a family photo in Marseille.
Finance ministers and central bankers from the Group of Seven nations pose for a family photo in Marseille. Photographer: Chris Ratcliffe/Bloomberg
U.S. Treasury Secretary Timothy Geithner
Chris Ratcliffe/Bloomberg
Timothy Geithner, U.S. treasury secretary, speaks during an interview with Bloomberg Television at the G7 finance ministers and central bank governors summit in Marseille.
Timothy Geithner, U.S. treasury secretary, speaks during an interview with Bloomberg Television at the G7 finance ministers and central bank governors summit in Marseille. Photographer: Chris Ratcliffe/Bloomberg
ECB's Juergen Stark Steps Step Down
Michele Tantussi/Bloomberg
Juergen Stark, an executive board member of the European Central Bank.
Juergen Stark, an executive board member of the European Central Bank. Photographer: Michele Tantussi/Bloomberg
Group of Seven finance chiefs vowed to support banks and buoy slowing economic growth as Europe’s debt crisis roiled financial markets and threatened a global recession.
“We will take all necessary actions to ensure the resilience of banking systems and financial markets,” G-7 finance ministers and central bankers said in a statement released during talks in Marseille, France late yesterday. “Concerns over the pace and future of the recovery underscore the need for a concerted effort at a global level in support of strong, sustainable and balanced growth.”
Renewed fears that European policy makers are failing to prevent a Greek default and contain their debt woes yesterday prompted investors to sell stocks and push the euro to a six- month low against the dollar. European bank and sovereign credit risk reached all-time highs as 10-year Treasury and German bund yields fell to record lows on demand for a haven.
Germany moved toward insulating its banks against the fallout of a possible Greek default and Juergen Stark’s resignation from the European Central Bank exposed the policy rifts aggravating the debt turmoil. Such shifts highlight the biggest risk to international expansion since the collapse of Lehman Brothers Holdings Inc. (LEHMQ) three years ago this month.
G-7 Concerns
The sense of disarray drew fire from G-7 officials with U.S. Treasury Secretary Timothy F. Geithner lobbying his European counterparts to get their act together. Canadian Finance Minister Jim Flaherty even suggested Greece may need to quit the euro.
“It’s not going to be an easy time in Europe for the next while, but certainly I’m satisfied that there is a resolve to deal with the problem,” Flaherty said in an interview today.
European authorities “need to do whatever they can do to calm these pressures,” Geithner told Bloomberg Television. “They have to demonstrate they have enough political will.”
Europe isn’t the only threat to the world economy with U.S. unemployment above 9 percent and Japan struggling with the effects of a strong yen. The G-7 officials detailed no new policies and undermining their ability to revive expansion is benchmark interest rates are already around record lows and public debts sit at unprecedented highs.
Dogged by voter unrest and ideological splits, Europe’s leaders have reignited investor unease less than two months since they outlined their latest remedy for a crisis nearing its second anniversary. Finland is demanding collateral from Greece in return for fresh aid and German lawmakers want veto power.
‘Moment of Truth’
“We need Europe to have its moment of truth, to recognize that the current course isn’t sustainable,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in an interview on Bloomberg TV’s “In the Loop” with Betty Liu. “They need to opt for one of two options: either full fiscal union, or a smaller, stronger euro zone.”
Central banks will “maintain price stability and continue to support economic recovery” and provide liquidity “as required” to lenders, while governments will pursue “growth- friendly” budget cuts, they said in their statement.
Japanese Finance Minister Jun Azumi ended his first G-7 meeting without his counterparts objecting to his pledge to take “bold actions” to stem yen gains, paving the way for a fresh intervention if he deems it necessary. The G-7 said while it prefers markets to set currency values, disorderly and excess movements can undermine stability.
Stark Splits
Evidence of another split at the heart of European policy making was highlighted by Stark’s unexpected announcement that he will quit the ECB’s Executive Board. Stark made the decision after privately protesting the bank’s program of purchasing stressed government bonds, which was widened last month to include those of Spain and Italy, a euro-area central bank official said.
The bond buying, which has totalled 129 billion euros ($177 billion) since it began in May 2010, was the ECB’s effort to soothe markets as governments sought longer-term solutions. It opened the Frankfurt-based central bank to criticism even from within its ranks that it blurs the line between monetary and fiscal policy and risks bloating its balance sheet.
Finance Minister Wolfgang Schaeuble today said Germany will nominate his deputy, Joerg Asmussen, to replace Stark.
Plan B
Reflecting mounting concern Greece may default and that the debt crisis is morphing into a banking crisis, German Chancellor Angela Merkel’s government is preparing plans to shore up its nation’s financial sector. The measures involve aiding lenders and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, said three coalition officials, who spoke on condition of anonymity because the deliberations are private.
The existence of a “Plan B” comes as German lawmakers intensify their criticism of Greece, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country’s progress.
Greek Finance Minister Evangelos Venizelos said today that speculation of a Greek default was aimed at the euro. His office said yesterday that the nation is committed to “full implementation” of its rescue agreement. Credit-default swaps on Greek debt have climbed to a record, signaling a more-than 90 percent chance the nation will fail to meet debt commitments.
Greece is relying on a sixth payment of 8 billion euros in international loans. The payment comes under the terms of the May 2010 bailout as EU leaders struggle to put together a second rescue package, which combines a voluntary debt swap and state asset sales.
Separately, French Finance Minister Francois Baroin said today the Group of Eight countries will increase to $38 billion aid for Egypt, Tunisia, Morocco and Jordan following political turmoil earlier this year. IMF Managing Director Christine Lagarde said the lender will dispatch a team to Libya.
To contact the reporter on this story: Simon Kennedy in Marseille, France, at skennedy4@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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