Finance Chiefs Reassure CEOs Over European Crisis

Finance Chiefs Reassure CEOs Over European Crisis
Market News
Like Us On Facebook
Like Us On Facebook

Leading finance chiefs sought to reassure anxious global business leaders on Friday that Europe is on track to solve its crippling debt crisis before it drags the world’s economies down. Europe’s top banker said investors, burned after trusting the region’s governments too much, now trust them too little.

The finance chiefs said the picture in Europe has changed over the past two months as the European Central Bank has loaned billions of euros to fragile banks, indebted countries have pushed through convincing reforms and EU leaders have come near to building a closer fiscal union that would make their common currency stronger.

Several also signaled Friday that Greece is close to clinching a crucial debt-reduction deal with private bondholders – a key element in Europe’s efforts to stem a two-year debt crisis that is causing ripples around the globe. The crisis is a central topic at the World Economic Forum, a gathering of government and business leaders at the Swiss ski resort of Davos.

“They’re making progress on reforms, they’re changing the institutions of Europe to put better discipline on fiscal policy,” said U.S. Treasury Secretary Timothy Geithner. “You have three new governments doing some very tough things. You have an ECB doing what central banks have to do. You see them move to try to strengthen the financial sector.”

Mario Draghi, head of the European Central Bank, said a combination of actions – including super-cheap, long-term loans to shaky banks on the continent and a couple of interest rate cuts – have turned the crisis around.

“We have avoided a major credit crunch, a major lending crisis,” he said.

Draghi said borrowing rates would remain high “for quite a while” because bond markets are overestimating the risk involved in holding European government debt after years of underestimating it. But he called market pressure “the most potent engine for reform in different governments.”

Geithner said the fate of the U.S. economy – and by extension of the rest of the world – hinges on Europe’s debt crisis, along with potential tensions with Iran. He said the main piece of unfinished business for Europe is building a bigger fund to help troubled economies survive.

But while French Finance Minister Francois Baroin said that fund needs to be increased to calm markets, his German counterpart, Wolfgang Schaeuble, indicated that his government is not prepared to do so. Germany, as Europe’s biggest economy, would face the biggest bill.

“We must not give the wrong incentives,” Schaeuble said. “You can make any figure. It will not work if the real problems will not be solved.”

Both, together with Spanish Economy Minister Luis de Guindos Jurado and European Monetary Affairs Commissioner Olli Rehn, agreed that the idea of issuing “eurobonds” backed jointly by all eurozone governments is a non-starter for now. They didn’t rule out the possibility that such bonds could be introduced once confidence in Europe’s public finances is restored, with Guindos calling that a “final target.”

Schaeuble said eurobonds would provide bad incentives by allowing debt-ridden countries to “spend money you don’t have on the bill of others.”

Many economists have said eurobonds are needed to solve the crisis as they could reduce the borrowing costs of heavily indebted countries by pooling them with bonds of stronger economies like Germany’s.

European leaders have been especially concerned about Greece, whose borrowing costs are so high that it needs a second European bailout just to pay its interest, but the finance chiefs signaled Friday that a deal is at hand.

Greece has been negotiating with the a group representing banks and other lenders in the hopes that they will forgive half of Greece’s debt in exchange for Greek assurances that it will pay back the other half without defaulting on its loans. The deal would also let Greece repay over a longer period at a lower interest rate – negotiators have been trying to agree on what that rate will be.

Schaeuble said he is “quite optimistic” about a deal, while Rehn said he hopes a deal can be reached “if not today, maybe by the weekend.”

Agreement between Greece and its creditors is needed before Europe and the International Monetary Fund agree to a second multibillion-euro bailout package.

At the heart of the problem is that the 17 countries that use the euro use a single currency but have different fiscal policies. That changes the nature of their debt, said Adair Turner, chairman of Britain’s banking regulator the Financial Services Authority.

“That debt is more equivalent to the State of California debt than the U.S. federal debt,” he said.

That’s why all but one of the 27 EU countries – the United Kingdom has refused to participate – are discussing a closer fiscal union. On Monday, leaders meet in Brussels to work out the details of that new compact.

Schaeuble and Baroin noted that even the agreement in principle to forge closer ties has calmed markets since a December summit, as borrowing rates have dropped and stock markets have risen.

“It’s amazing,” Draghi said. “If you compare today with even five months ago, the euro area is another world.”

The crisis threatens more than Europe: the U.N.’s refugee chief warned Friday that it is fueling conflicts around the world. Antonio Guterres told The Associated Press that rising food prices and growing unemployment are hitting those already at the bottom hardest, sparking conflict in places like South Sudan and exacerbating hotspots including Afghanistan, Iraq and Somalia.

Associated Press

Share Tweet
React
Like Us On Facebook
Like Us On Facebook

Preston Waters

Preston Waters is a thinker. He's not your traditional philosophical persona, however, as he leaves no topic untouched. Covering all the bases, from business to women, Preston Waters is the ultimate man's man for Gen-Y.

More In Market News

News Preston Waters

Stocks Off to Stellar Start in May

Stocks were kicking off May in high style Tuesday, posting sharp gains after a much better-than-expected report on U.S. manufacturing activity. The Dow Jones Industrial Average was rising 103 points, or 0.8%, at 13,317, after hitting a four-year high at 13,338. The S&P 500 was up 14 points, or 1%, at 1413, and the Nasdaq was adding 23 points, or 0.7%, at […]

News Preston Waters

Bank Of America, JPMorgan: Dow Midday Movers

U.S. stocks were rising in midday action Tuesday following a better-than-expected read on U.S. manufacturing activity.The Dow Jones Industrial Average was up more than 116 points, or 0.9%, at 13,330. The biggest percentage gainers within the Dow were Bank of America (BAC), JPMorgan Chase (JPM) and Intel (INTC). Shares of Bank of America rose 2.59% to $8.32. The bank said Tuesday it plans to lay […]

News Preston Waters

Monster Stocks Soar Amid Rumors Coca-Cola Is Set To Buy Energy Drink

Monster Beverage Corp’s shares soared on Monday following a report that Coca-Cola Co. was considering buying the energy drink maker. The Wall Street Journal cited unnamed people in reporting that the world’s biggest soft drink maker was in talks to buy Monster. If a deal transpired, Monster would be Coca-Cola’s largest brand acquisition ever. Monster declined […]

News Preston Waters

Stocks Surge After Strong Manufacturing Report

Stocks were surging in morning action Tuesday after a much better-than-expected report on the pace of national manufacturing activity in April.The Dow Jones Industrial Average was rising 80 points, or 0.6%, at 13,294. The S&P 500 was up 12 points, or 0.8%, at 1410, and the Nasdaq was adding 29 points, or 1%, at 3075. Stocks finished modestly lower Monday, marking […]

News Preston Waters

Bank Of America Keeps Shrinking

Bank of America (BAC)’s plan to lay off some of its highest-paid executives looks like the right response to the current banking environment. The Wall Street Journal reported Tuesday the bank will cut 2,000 positions in its investment banking, commercial banking and non-U.S. wealth-management units targeting “the high-earning employees whose efforts helped Merrill Lynch account for the bulk of […]

News Preston Waters

Stock Market Story: May 1

The first trading day of May got off to a mixed start early Tuesday with all three major U.S. equity indices honing to close to the flat line ahead of a key report on the pace of U.S. manufacturing activity in April. The Dow Jones Industrial Average was down 9.5 points, or 0.07%, at 13,204.The S&P 500 was up less than a […]

Also On Elite

Entertainment

You Wish Your Passport Photo Looked As Good As Kim Kardashian’s

Now that Kim has married Kanye, she apparently needs to get down to the logistical hassles of marriage. One of those things is getting a new passport. We knew Kim changed her name on Instagram to Kim Kardashian West, but it was uncertain if she legally changed it. We’re still not certain on that front, […]

Sports

Delonte West Might Have Just Admitted He Had Sex With LeBron’s Mom

A lot of things plagued LeBron’s career when he first started off in Cleveland. Not winning a ring in seven years was one, and immature as it sounds, his receding hairline was another. Now that he’s overcome both, there’s just one more thing that he needs to come to terms with: The rumor that his […]

World

Biblical Plague Comes To Life As Millions Of Locusts Swarm African City (Video)

In what looked like a scene straight from the Bible, millions of locusts flew through the streets of Antananarivo, Madagascar’s capital city, on Thursday. The swarm of locusts were such a problem that they slowed down traffic and caused low visibility as they invaded the city. Locusts have been an issue in Madagascar for over […]

World

Scientists Have Figured Out A Way To Change Bad Memories To Good Ones In Mice

Neuroscientists at MIT were able to tap into the emotional component within the brains of mice and turn memories associated with pain into pleasant thoughts. According to Wired, Roger Redondo and graduate student Joshua Kim first led the team in fostering positive and negative memories. They gave food or electric shocks to the mice based […]

World

Artist Provides Brilliant Response To ‘Contest’ That Asks Him To Work For Free

Brooklyn-based graphic designer Dan Cassaro felt offended when Showtime cable network asked him to work for free. When the cable network emailed Cassaro an invitation to participate in their Sports Mayhem Art Contest, he sent back a priceless retort about the value of artistic work. I don’t work for free. pic.twitter.com/Mxm7DrupRw — Dan Cassaro (@Dan_Cassaro) […]