European Finance Ministers to Discuss Crisis

by lexie Sun Dec 18, 2011 5:25 pm

Dec 18, 2011 12:48 PM CT .

European Finance Ministers to Discuss Crisis

European finance ministers will seek to meet a self-imposed deadline for drawing additional aid to the debt crisis and cobble together new budget rules as investor confidence that a comprehensive solution is achievable wanes.

Euro-area finance ministers will hold a conference call at 3:30 p.m. Brussels time tomorrow to discuss 200 billion euros ($261 billion) in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at a Dec. 9 European Union summit, according to two people familiar with the planning.

“They’ll try to get as much done as they can before Christmas, but it’s doubtful they’ll put markets in a Christmas mood,” Carsten Brzeski, an economist at ING Group in Brussels, said in an interview. “There is still so much uncertainty.”

The accord to ratchet up budget rules failed to ease concern that the monetary union risks buckling under the weight of the two-year-old crisis. Fitch Ratings lowered France’s credit outlook and put other euro-area nations on review Dec. 16, saying an overall crisis solution may be “technically and politically beyond reach.” Belgium’s rating was cut two levels to Aa3 by Moody’s Investors Service on the same day.

Euro-area officials aim to meet their deadline for tomorrow to arrange the IMF loans. The package entails about 150 billion euros pledged by euro-area central banks and another 50 billion euros to be contributed by non-euro EU states. The euro-area ministers will be joined in the call by their EU counterparts to thrash out measures including the decision-making process of the bloc’s permanent bailout fund, the European Stability Mechanism, one of the people said.

‘Adverse Effect’
“The systematic nature of the euro-zone crisis is having a profoundly adverse effect on economic and financial stability across the region,” Fitch said in a note. The growing uncertainty is overshadowing countries’ reform efforts, it said.

The euro lost 2.5 percent against the U.S. dollar last week after the Brussels summit. The U.K.’s refusal to sign on to an EU-wide treaty change locking in new debt rules exposed divisions within the bloc and forced euro-region leaders to come up with a legal framework to patch together budget rules.

Luxembourg’s Jean-Claude Juncker said two days ago that EU leaders would meet the deadline on channeling funding through the IMF, while Germany’s Bundesbank said it saw “no urgent need” to reach a decision.

U.K. Role

The U.K. is weighing whether to commit more funds to the IMF. Prime Minister David Cameron’s spokesman said Dec. 14 that the U.K. hadn’t agreed to increase its IMF contribution, fending off a report in The Daily Telegraph that the nation’s contribution might rise by 30 billion pounds ($46.6 billion).

Tomorrow’s conference call is likely to focus on setting a roadmap for more detailed debate next month on a German-inspired budget-stability treaty. Chancellor Chancellor Angela Merkel demanded treaty-level barriers against runaway debt and deficits to offer the prospect of a future “fiscal stability union” that restores investors’ shattered confidence in Europe’s economic management.

The European Commission’s power to enforce deficit limits will be strengthened, requiring a high-deficit state to amass a supermajority within the euro region to head off disciplinary procedures, according to a draft of the text.

Governments will also be required to adopt balanced-budget amendments with an “automatic correction mechanism.” Those provisions will be enforced by the European Court of Justice and national courts.

ECB Divisions
The treaty, to be hammered out by late January and signed in early March, will take effect once ratified by nine of the 17 euro-area countries. EU states outside the euro will join as they ratify, with the U.K. alone so far in refusing to sign up.

Fitch cited the European Central Bank’s failure to act as a financial backstop as contributing to its decision last week. Fitch placed Spain, Italy, Belgium, Slovenia, Ireland and Cyprus on a “Rating Watch Negative” review.

Departing ECB Executive Board Member Juergen Stark revealed divisions in the central bank on measures to ease market turmoil with bond purchases. He told German magazine WirtschaftsWoche in an interview to be published tomorrow that his decision to leave the ECB derived from his disappointment over “how this monetary union has evolved.” He criticized the bond purchases.

ECB President Mario Draghi has signaled that the Frankfurt- based bank won’t step up its bond-purchase program, leaving euro-area governments on their own to resolve the crisis.

http://www.bloomberg.com/news/2011-12-18/european-finance-ministers-to-discuss-crisis-tomorrow-as-confidence-wanes.html