U.S. backs euro ahead of crunch summit
US Treasury Secretary Timothy Geithner voiced confidence on Wednesday that the European Union will find a way out of its debt crisis when he met eurozone leaders ahead of a crucial EU summit inBrussels.
“I assessed how important it is for the US and countries around the world that Europe succeed,” Geithner said after talks with French Finance Minister Francois Baroin in Paris. “I’m confident they will succeed.”
Geithner, who is meeting leaders including French President Nicolas Sarkozy ahead of Thursday’s summit, said he wanted to “make sure there is a sufficient strong firewall in place” to stop the crisis spreading.
“We exchanged views on the need for the highest possible firewall to avoid contagion,” Baroin said, after laying out French-German proposals aimed at bolstering eurozone discipline to be examined at the Brussels summit.
Baroin said ahead of his meeting with Geithner that the situation was “serious” and that the eurzone needed to create a “confidence shock” after months of what the markets perceive as leaders’ torpor.
“The crisis we’re going through is unprecedented, there’s no doubt about that,” Baroin told Canal Plus television.
“States must quickly consolidate their public finance, reduce their deficits, stabilise the zone, modify governance,” he said.
Baroin said that in Brussels “neither Angela Merkel nor Nicolas Sarkozy will leave the table without a strong agreement being signed.”
General firmness on financial markets on Wednesday reflected a sentiment of some optimism about the outcome.
EU leaders are under intense pressure to convince markets they can come up with a rapid rescue plan for the eurozone following the threat of possible debt downgrades by ratings agency Standard and Poor’s.
S&P’s announcement came hours after Sarkozy and German Chancellor Angela Merkel announced their plan for a new EU treaty and tougher budgetary rules, including sanctions for lax eurozone economies, after crisis talks on Monday.
The debt warning means that Germany, France and other eurozone countries could lose their top-notch credit ratings without urgent action and their borrowing rates would probably rise.
However, Germany attracted strong interest at a bond auction on Wednesday.
Meanwhile the EU’s EFSF bailout fund, also the target of the downgrade warning because it is backed by the ratings of eurozone countries, said it intended to issue short-term paper by the end of this year.
Eurozone nations are holding intensive debt crisis talks to find ways to bolster their financial firewall ahead of the summit, diplomatic sources said on Tuesday.
One option being considered is to allow two rescue funds to exist temporarily side-by-side instead of just the single bailout fund currently in existence — the European Financial Stability Facility (EFSF), they added.
A temporary rescue fund set up after the crisis in Greece, the EFSF was to be replaced by a permanent rescue pot, the European Stability Mechanism, expected to be given shape mid-2012.
But the EFSF, which was set up in May last year to protect vulnerable eurozone nations, could also see its debt downgraded.
Its current triple-A rating enables the fund to raise financing in the bond market with much lower interest rates than bailed-out nations would get on their own.
Geithner arrived in Paris from talks in European economic powerhouse Germany on Tuesday, including with European Central Bank chief Mario Draghi in Frankfurt and German Finance Minister Wolfgang Schaeuble in Berlin.
EU president Herman Van Rompuy and Commission chief Jose Manuel Barroso will in Brussels raise the controversial idea of issuing so-called eurobonds backed by all eurozone members, which Germany strongly opposes.
European stocks and the euro rallied in early trading on Wednesday, following gains for stocks across Asia, on optimism that the EU summit would result in a big-bang breakthrough.
In early European stock market trading, London’s FTSE 100 index jumped 1.02 percent to 5,625.44 points, Frankfurt’s DAX 30 gained 1.44 percent to 6,115.37 points and in Paris the CAC 40 advanced 1.66 percent to 3,232.77. Madrid won 1.36 percent and Milan 1.61 percent.
The euro climbed to $1.3444 from $1.3397 late in New York on Tuesday.
“This slightly better tone is in line with cautious optimism that the EU summit could lay the groundwork for a solution for the eurozone crisis,” said Rabobank analyst Jane Foley.
After Paris, Geithner will travel to the southern French city of Marseille where Europe’s conservative leaders are gathering before the summit and hold a bilateral meeting with Spain’s Prime Minister-elect Mariano Rajoy.
His final stop was expected to be in Italy, in the eye of the eurozone storm, where he will hold talks with Prime Minister Mario Monti.