US Treasury voices trust about eurozone solution
ISTANBUL - Anatolia News Agency
U.S. Treasury Secretary Timothy Geithner (L) and French Finance Minister Baroin (C), answer reporters after their meeting in Paris yebterday. Geithner says he is very encouraged with the progress Europe is making in coming up with a plan to shore up the euro. AP photoU.S. Treasury Secretary Timothy Geithner voiced confidence yesterday that the European Union would find a way out of its debt crisis when he met eurozone leaders ahead of a crucial EU summit in Brussels.
“I assessed how important it is for the U.S. and countries around the world that Europe succeed,” Geithner said after talks with French Finance Minister Francois Baroin. “I’m confident they will succeed.”
Geithner, who met leaders including French President Nicolas Sarkozy ahead of today’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 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,” he told Canal Plus television. “States must quickly consolidate their public finances, reduce their deficits, stabilize the zone, modify governance.”
Baroin said that in Brussels “neither Angela Merkel nor Nicolas Sarkozy will leave the table without a strong agreement being signed.”
EU leaders are under intense pressure to convince markets they can come up with a rapid rescue plan 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.
Spirits high at bond auction
However, Germany attracted strong interest at a bond auction yesterday. Berlin received 8.67 billion euros ($11.6 billion) in bids for 5 billion euros worth of its five-year paper. The average yield of the debt was 1.1 percent.
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 talks to find ways to bolster their financial firewall ahead of the summit, according to diplomatic sources.
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).
A temporary rescue fund, the EFSF was to be replaced by a permanent rescue pot, the European Stability Mechanism (ESM), 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 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.
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 is scheduled to be Italy, where he will hold talks with Prime Minister Mario Monti.