Euro Leaders Pressed by U.S., U.K. to Step Up Sovereign Debt-Crisis Fight
The U.S. and Britain pressed euro- area leaders to intensify efforts to prevent the sovereign debt crisis from further infecting the global economy.
President Barack Obama said financial-market turmoil will continue until European leaders persuade investors they have a convincing plan. Bank of England Governor Mervyn King and the U.K. Treasury said Europe’s woes are the biggest threat to the British economy.
“I’m deeply concerned, have been deeply concerned -- I suspect will be deeply concerned tomorrow and next week and the week after that,” Obama said during a visit to Canberra today.
Inaction by Europe’s leaders and resistance from the European Central Bank to expand purchases of government bonds raised the prospect of contagion to so-called core euro nations such as Finland and Austria. Italy’s 10-year-bond yield opened today above the 7 percent threshold that prompted Greece, Ireland and Portugal to seek bailouts.
Yields on Spanish five-year government securities today reached 5.82 percent, the highest since before the euro was created in 1999. Bonds issued by countries from Finland to Austria slid yesterday, driving up their premiums over benchmark German securities.
The market rout came two weeks after European leaders completed an all-night summit to bolster their rescue efforts. They agreed to recapitalize banks and force bondholders to take a 50 percent writedown on Greek debt in what they called a comprehensive approach intended to end the crisis that has frustrated their proposed solutions for almost two years.
“The euro area’s policy options have now narrowed to such an extent that there appears to be total policy paralysis,” said Grant Lewis, head of economic research at Daiwa Capital Markets in London. “The longer that this goes on, and the more the contagion spreads from the ones requiring a bailout to the countries that are supposed to be providing the bailout funds, the more dangerous and intractable the situation becomes.”
The U.K. central bank said today that failure by European officials to resolve the turmoil could lead to “significant adverse effects” on the global economy. The Treasury took the unprecedented step of releasing a statement saying it backs the comments in the report.
“There is no meaningful way to quantify the most extreme outcomes associated with developments in the euro area,” King told reporters.
‘Bad to Worse’
Norway is prepared for a worsening of the debt crisis, Finance Minister Sigbjoern Johnsen said.
“The best thing we can do in Norway is to prepare for that things can go from bad to worse in Europe,” Johnsen said today in an interview in Oslo. “We have seen some increases in yields in both Spain and France and that shows that this isn’t over and that uncertainty is still high.”
In Paris, French President Nicolas Sarkozy’s weekly Cabinet meeting didn’t touch on the market volatility that has sent the risk premium on his government’s bonds to a record, according to a summary of the gathering.
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