Europe must show more resolve to fix the debt crisis as officials race to draft rules governing the euro and bridge widening difference over how to keep Greece’s finances afloat, said delegates at the World Economic Forum.
“We can’t wait too long,” said Peter Voser, chief executive officer of Royal Dutch/Shell Plc. “It’s two minutes before midnight.”
Executives and officials are meeting in Davos, Switzerland as bond markets show signs of stabilizing after the European Central Bank last month pumped three-year emergency funding into a banking system that was in danger of seizing up. At the same time, governments, investors and the International Monetary Fund are split on how to restructure Greek debt less than two months before a potential default.
IMF Managing Director Christine Lagarde said today that Greece’s “public creditors” will have to participate with investors. Two people familiar with the stance of the ECB’s Governing Council said the central bank is opposed.
Delegates warned it’s too soon to sound the all clear on Europe even after the ECB’s decision to pump emergency cash into the banking system staved off a bond market rout in the region.
The ECB’s measures “have relieved the liquidity problems of European banks but didn’t cure the financing disadvantages highly indebted countries suffer,” billionaire investor George Soros told reporters in Davos today. “Half a solution isn’t enough.”
The views dovetail with the findings of a Bloomberg Global Poll, conducted Jan. 23-24. Almost half of respondents identified the euro area as one of the worst to invest in and 67 percent predicted the crisis will deepen. Draghi nevertheless won plaudits with 70 percent saying they had a favorable view of him.
“I’m convinced he’ll do whatever is necessary to fend off the crisis,” Urs Rohner, chairman of Credit Suisse Group, said in an interview.
Europe’s drive to end the crisis has hit a snag as governments and investors struggle to reach an accord over how to cut Greece’s debt levels. European officials are demanding that private bondholders take deeper losses, while banks argue that all holders of Greek debt, both public and private, should contribute. Failure to reach agreement could mean Greece will struggle to make a bond payment on March 20.
“No one wants to be the only one feeling the pain,” said John Veihmeyer, chief executive for the Americas at KPMG, the global accounting and professional services firm.
The ECB began buying Greek bonds in May 2010 and Barclays Capital estimates it now holds about 36 billion euros ($46.6 billion) worth of bonds.
Some observers in Davos say leaders are refusing to grasp more dramatic measures.
“This year is decisive for making decisions,” said German Gref, chief executive officer of OAO Sberbank (SBER03), Russia’s largest bank. “It would be considerably more rational for Greece to quit the eurozone. For Greece it will mean a gradual accelerating of its economy, restoring its competitiveness.”
Delegates will listen to Merkel’s speech for any sign she’s shifted her stance on euro bonds to help out the region’s most indebted countries as Europe pushes ahead with her plan to lock in stricter debt and deficit limits.
While Merkel said that joint euro-area bonds “are no solution to the current crisis” in an interview published today with European newspapers including Germany’s Sueddeutsche Zeitung, she reiterated that European countries might consider “more joint liability once we have achieved much deeper integration,” according to an e-mailed transcript.
“We took an important step by discussing reasons of the crisis in an honest manner,” German Labor Minister Ursula von der Leyen said in an interview. “A single currency means a joint budget discipline. That has been accepted. In the medium to long term, confidence in Europe will only be re-established if we prove that we’re competitive.”
In contrast, delegates are much more optimistic about prospects for the U.S.
“It’s like a well-kept secret that U.S. is doing better,” said Vivek Ranadive, chief executive officer of Tibco Software Inc., who plans to hire 500 people in the U.S. this year in sales and service. “It is a good time to hire,” he said in an interview in Davos.
The Department of Commerce will report Jan. 27 that the economy grew 3 percent in the fourth quarter of 2012, according to the median estimate of a separate Bloomberg Survey of 78 economists. That would be the fastest pace since the second quarter of 2010.
The unemployment rate fell in December to 8.5 percent, the lowest since February 2009, and an index of sentiment among homebuilders increased this month to the highest level since June 2007.
Occupancy rates at U.S. hotels run by Starwood Hotels & Resorts Worldwide Inc. are above their level before the financial crisis started, according to President Matthew Avril.
Starwood, owner of brands including W and St. Regis, opened 27 hotels in North America last year and plans to open 20 more in 2012, the Stamford, Connecticut-based company said in a statement yesterday.
To be sure, Dimensional Fund Advisors LP Chairman David Booth said investors’ bullish view on the U.S. makes him nervous about the growth prospects for the world’s largest economy.
“Generally, when there is a consensus that is a good time to take the other side,” Booth, whose firm oversees $200 billion, said in an interview with Bloomberg Television’s Erik Schatzker today from Davos.
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