Originally from our sister publication, Advisor.ca.
German and Italian leaders have issued a new pledge to protect the eurozone, with the Eurogroup chairman saying officials have no time to lose when it comes deciding what measures are required.
European leaders promise they’ll do everything possible to save the 17-nation euro. On Thursday, investors will be paying close attention to the monthly meeting of the ECB’s policy-setting council.
ECB president Mario Draghi says the bank will preserve the euro, causing markets to surge on hopes of action.
German chancellor Angela Merkel and Italian premier Mario Monti agreed, saying, “Germany and Italy will do everything to protect the eurozone” in an interview Saturday with government spokesman Georg Streiter.
They didn’t pledge any specific action, but their comments raised expectations the ECB might step in to buy Spanish, and perhaps Italian, government bonds to lower the countries’ borrowing escalating costs.
The eurozone’s temporary rescue fund—the European Financial Stability Facility—could also buy the bonds.
“What measures we will take, we will decide in the coming days,” says Jean-Claude Juncker, Luxembourg prime minister. “We no longer have any time to lose.”
Merkel and Monti agreed decisions made by last month’s European Union summit must be implemented quickly.
Those included allowing Europe’s bailout fund to give money directly to a country’s banks, rather than via the government. Countries pledging to implement reforms demanded by the EU’s executive Commission would be able to tap rescue funds without having to go through the kind of tough austerity measures demanded of Greece, Portugal and Ireland.
“I have no doubt we will implement the decisions of the last summit,” Juncker says.
He adds, “I don’t want to raise expectations, but we have arrived at a decisive point…the euro countries have arrived a point where we must make extremely clear, with all available means, we’re determined to ensure the financial stability of the currency union.”
Merkel’s finance minister, Wolfgang Schaeuble, earlier dismissed talk that Spain might make an application to the EFSF to buy its bonds.
The latest assurances come as concern flares again about Greece; international debt inspectors are scrutinizing Greece’s finances, along with its lackluster progress in implementing recent, unpopular budget cuts and reforms.
As Financial Times reports, Greek leaders agreed they would ease social pain if sweeping cuts in wages, pensions and allowances were postponed until 2015. Only structural reforms can go ahead next year as planned, they say.
The leaders’ comments highlight the resistance of both the Pasok and Democratic Left to further harsh measures, which would keep Greece in recession for a sixth straight year and shrink the economy by 20%.
Greek officials have demanded more time to implement the measures, but patience among creditors is running short. If the inspectors’ report in September is damning, Athens could stop receiving loans and face bankruptcy and an exit from the euro.
“The aid program is already very accommodating. I cannot see that there is still scope for further concessions,” Schaeuble says.
Adding to negative sentiment is the growing number of people unemployed across the 17 countries using the euro; data hit a record high in June and reminded officials that Europe’s debt crisis has spread beyond financial markets.
Eurostat, the EU’s statistics office, says more than 17 million citizens are out of work in the eurozone in June, which is 123,000 more than in May. It’s also the highest level recorded since the euro was formed in 1999.
The increase is the 14th in a row, and means around 2.25 million people have lost their jobs since April 2011.
Despite the increase, the seasonally adjusted unemployment rate in June was unchanged at a record 11.2%. The region’s unemployment rate is nearly three percentage points higher than the U.S.’s 8.2%.
“Another horrible set of labour market data for the eurozone, which bodes ill for consumer spending and growth prospects,” says Howard Archer, chief European economist at IHS Global Insight.
These figures will add to the pressure on policymakers to get a grip of the debt crisis, which has hit investor confidence in the eurozone, as well as forced five countries to seek external aid and pushed companies to cut their staff.
Hopes have risen over the past week, though, that Europe is preparing new measures to handle the crisis. The ECB meets this Thursday to decide on its benchmark interest rate. It could use this opportunity to announce any other measures.
“Irrespective of what happens at the meeting, the economic data out of Europe is nothing short of woeful,” says Michael Hewson, markets analyst at CMC Markets.
A stagnating economy and rising unemployment, which combine to keep a lid on wage increases, are expected to push inflation back below target over the coming months. Lower energy inflation is also expected to ease inflationary pressures.
This opens the door for the ECB to cut its benchmark rate below its current record low of 0.75%, in addition to any anti-crisis measures it announces.