By Tony Czuczka and Mark Deen - Nov 18, 2011 4:22 PM GMT+0700
Nov. 18 (Bloomberg) -- Laurence Fink, chief executive officer of BlackRock Inc., and Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., talk about the European sovereign debt crisis and the global outlook. They speak with Bloomberg's Erik Schatzker yesterday at an alumni event hosted by the UCLA Anderson School of Management and Bloomberg Television. (Source: Bloomberg)
Nov. 18 (Bloomberg) -- Stephen King, chief economist at HSBC Holdings Plc, talks about the euro-zone debt crisis, bond yields and the European Central Bank's role in backing indebted nations. He speaks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)
The failure of European leaders to end the debt crisis with their broadest effort yet has revived a Franco-German dispute over the European Central Bank’s role and fueled investor concerns over policy makers’ economic impotence.
ECB chief Mario Draghi today slammed governments for failing to implement policy commitments as holders of Greek debt began talks in Athens on structuring a 50 percent writeoff that was the cornerstone of a deal pieced together last month at an all-night summit. Officials in Berlin and Paris yesterday swapped barbs and European borrowing costs outside of Germany rose to euro-era records.
The discord highlighted markets’ brushoff of a package that included a scaled-up rescue fund, proposed guarantees of sovereign debt and a bid to attract more international loans. The accord, which finance ministers aim to implement next month, was at least the fourth plan billed as a comprehensive strategy to end the crisis born in Greece in 2009, none of which provided a lasting fix.
“Where is the implementation of these long-standing decisions?” Draghi said in a speech in Frankfurt today. “We should not be waiting any longer.”
Stocks slid, dragging the MSCI All Country World Index to a six-week low. The Stoxx Europe 600 Index decreased 0.7 percent. The premium France pays over Germany to borrow for 10 years jumped to a record 200 basis points yesterday, as yields on bonds of countries from Portugal to Finland, the Netherlands to Austria also rose relative to Germany.
‘Clearly Broadening’
“The crisis is clearly broadening,” Riccardo Barbieri, London-based chief European economist at Mizuho International Plc, told Bloomberg Radio’s Ken Prewitt yesterday. “Only Germany, and to some extent the Netherlands, are immune from the crisis at the moment.”
German Chancellor Angela Merkel and French President Nicolas Sarkozy telephoned new Italian prime minister Mario Monti late yesterday and stressed the need for the euro region to accelerate implementation of those measures agreed on at the Oct. 26-27 summit, according to an e-mailed statement.
It is now up to Italy and Greece to convince markets they can deliver the necessary austerity measures as Europe runs out of options to fix its debt crisis, Finnish Prime Minister Jyrki Katainen said in an interview in Helsinki yesterday.
“The European Union cannot restore confidence in Greece and Italy if they don’t do it themselves,” Katainen said.
Merkel’s Rejection
As President Barack Obama urged more urgent action to avert global turmoil, Merkel rejected French calls to deploy the ECB as a crisis backstop.
“If politicians believe the ECB can solve the problem of the euro’s weakness, then they’re trying to convince themselves of something that won’t happen,” Merkel said.
French Finance Minister Francois Baroin said in a speech in Paris on Nov. 16 that “the best way to avoid contagion is to have a solid firewall” by using central bank support for Europe’s 440 billion-euro ($595 billion) rescue fund.
“We haven’t won the argument,” Baroin said. “We won’t make it a casus belli, but naturally we continue to think it would be the best way to bring stability to Europe.”
Inflation Fears
Sarkozy had backed down over the role the ECB should play in fire-fighting, acknowledging Germany’s inter-war experience of inflation, to help obtain the Oct. 27 accord among European leaders. The Frankfurt-based ECB has also resisted calls to provide more support. Draghi said Nov. 3 that backstopping government borrowing lies outside the ECB’s remit.
“Printing money at the end of the day means inflation,” Michael Fuchs, the economy spokesman for Merkel’s Christian Democratic Union party, said in an interview with BBC Radio 4’s “Today” show. “Every German is very much scared about inflation.”
The clash is intensifying as France, Europe’s second- biggest economy and the second-largest backer of the European Financial Stability Facility after Germany, is dragged more deeply into the crisis that in the past week led to the ousting of Italy’s Silvio Berlusconi and George Papandreou of Greece.
In her speech, Merkel reached out to the U.K. on the eve of Prime Minister David Cameron’s visit to Berlin today, praising his effort to cut government spending and saying that “we want a Europe with Great Britain” that doesn’t exclude any member country from the euro area.
To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; James Hertling at jhertling@bloomberg.net
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