European leaders scramble to stem debt crisis
European Union leaders hold a flurry of meetings on Tuesday on fighting the debt crisis now threatening Italy and France while deficit gridlock also puts the United States in the spotlight.
The new prime ministers of Italy and Greece, who took over governments felled by the crisis, were to hold separate talks with top EU officials in Brussels and Luxembourg to present debt-fighting plans to keep their nations afloat.
The meetings come on the eve of new proposals to be unveiled by the European Commission to tighten fiscal discipline in theeurozone and raise the possibility of issuing joint bonds to pool debt among the 17 euro nations.
Meanwhile, German Chancellor Angela Merkel congratulated Spain’s Mariano Rajoy and his conservative Popular Party for winning power at the weekend, saying: “In tough times for Spain and Europe you have received a clear mandate from your people to pass and implement the necessary reforms.”
The market focus on the debt drama, however, has turned also to the United States and France as markets worry at the risk that the crisis which has engulfed smaller nations could infect the world’s number one and number five economies.
Worried that the eurozone crisis will spark a world recession, the United States has pressured the European Union to quickly ringfence its economy but Washington’s attempt to curb its ownmassive debt was foiled by partisan bickering.
A US Congress “supercommittee” declared on Monday that it had failed to reach a deal to cut US deficits by $1.2 trillion over 10 years due to Republican and Democratic feuds over how best to revive the nation’s sluggish economy.
US President Barack Obama held out hope that lawmakers could reach a new deal and tried to reassure the markets by saying that despite a ballooning national debt of more than $15 trillion, there was no imminent threat of a US default.
“The question right now is whether we can reduce the deficit in a way that helps the economy grow — that operates with a scalpel, not with a hatchet,” said Obama, who faces a re-election battle next year.
The United States is in the crosshairs of credit ratings agency over its massive debt.
Standard & Poor’s, which jolted Washington by downgrading US debt in August, maintained its AA+ credit rating and warned that if lawmakers bust previously agreed-upon spending caps, “downward pressure on the ratings could build.”
Fitch ratings agency said it would wait until the end of November to review the US sovereign rating.
Another ratings agency, Moody’s, warned France on Monday that the country could lose its cherished triple-A rating due to higher government borrowing costs, slowing growth and the eurozone debt crisis.
France has slashed spending and tightened up on tax revenues in an effort to stabilise its strained public finances and retain its top creditworthiness.
Asian markets were mixed following the US political deadlock and the French credit warning, with Tokyo down 0.40 percent and Shanghai 0.10 off.
“Investors are seeing this situation as further evidence that ‘the lights are on but no one’s at home’ when it comes to political leadership of the world’s major economies,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.
After Greece, Ireland and Portugal took bailouts, Italy is scrambling to convince markets that it can fend off contagion after Mario Monti was named to lead a cabinet of technocrats that succeeded Silvio Berlusconi’s government.
Monti will hold talks with EU president Herman Van Rompuy and European Commission chief Jose Manuel Barroso to discuss the battle-plan of his cabinet of technocrats, which came to power after Silvio Berlusconi resigned under pressure from the markets.
The new Greek premier, Lucas Papademos, met the two top EU officials on Monday and was to meet with Eurogroup chief Jean-Claude Juncker in Luxembourg on Tuesday as Athens seeks to convince eurozone partners it deserves to receive another 8.0 billion euros in urgent bailout aid by mid-December.