Eurozone crisis could rip EU apart
The eurozone crisis could wreck the European Union, top EU officials warned on Wednesday as the leaders of Germany and France held talks with Greece to avoid a default and widespread chaos.
The pressure rose on all fronts with United States again expressing great concern, with Treasury Secretary Timothy Geithner saying European states “now recognise they are going to have to do more” to resolve to the crisis.
Highlighting the threat to the global economy, Geithner is to exceptionally attend talks between European Union finance ministers and central bankers in Poland on Friday.
French President Nicolas Sarkozy, German Chancellor Angela Merkel and Greek Prime Minister George Papandreou were to hold a teleconference late Wednesday as markets price in a default by the government in Athens, and credit rating giant Moody’s downgraded two major French banks given their exposure to Greek debt.
“Europe is in danger,” Polish Finance Minister Jacek Rostowski, whose country currently chairs EU meetings, told the European Parliament in Strasbourg.
“If the eurozone breaks up, the European Union will not be able to survive,” he added.
At his most dramatic, Rostowski even warned that “war” could return to Europe if the crisis fatally weakens the EU, founded amid the rubble of World War II.
His underlying message was backed up by European Commission president Jose Manuel Barroso, who described the crisis as “the most serious challenge of a generation.”
Barroso stressed: “This is a fight… for the economic and political future of Europe.”
EU economic affairs commissioner Olli Rehn warned that “a default or exit of Greece from the eurozone would carry dramatic social, economic and political costs.
“Not only for Greece, but also for euro area member states, other EU states, as well as global partners.”
He said what Europe needed was a moment of clarity leading towards a federal future, “and that moment must start today.”
Barroso announced he will “soon” present proposals for eurozone states to issue joint bonds, a way to even out interest rates among the single currency area’s 17 nations.
Such “eurobonds” are currently opposed by Germany and could require a new round of painful EU treaty negotiations.
Meanwhile Italy’s lower house of parliament endorsed its government’s 54.2 billion euro ($74 billion) austerity package — although a final vote of passage will not come until the evening.
Italy’s debt stands at 120 percent of gross domestic product, and many analysts are convinced it is next in line to draw sustained bond-market fire.
Stocks in Europe and the United States rose in the run-up of the Sarkzozy-Merkel-Papandreou talks.
Sarkozy will “do everything to save Greece,” government spokeswoman Valerie Pecresse said, with the Greek government struggling to squeeze more savings out of its recession-ravaged budget.
EU officials have warned repeatedly that Athens will not receive the next slice of aid, worth eight billion euros ($11.0 billion), unless it can persuade EU and IMF auditors, about to resume work, that it can overcome its deficit crisis.
Problems also remain to be resolved over support for wider bailout funding in Finland, Slovakia and the Netherlands at least.
But with the pressure on markets intensifying, Europe’s major economies will not let the region’s biggest financial institutions “be at risk,” Geithner said.
“They recognise they have been behind the curve” in dealing with the debt crisis, the Treasury chief added.
Analysts say that decision makers on financial markets are broadly working on an assumption that Greece will default to a substantial degree.
That would hit government creditors as well as private banks and other investors which accepted a partial loss on their investments in July under a yet-to-be completed second rescue for Greece.
“The question of whether or not Greece will default is pretty much solved for the financial markets,” said analysts at German lender Commerzbank, terming a “short-term” default “more or less unavoidable.”
The stakes are rising: after US President Barack Obama called for greater European efforts, the BRICS grouping — Brazil, Russia, India, China and South Africa — said they would discuss possible aid to Europe over Greece next week.
International Monetary Fund chief Christine Lagarde described their plans as “an interesting development,” and added that she hoped bond-buying interventions from these emerging powers would be “large and not limited to certain states.”
Moody’s downgraded Credit Agricole and Societe Generale, and left BNP Paribas on tenterhooks.
Shares in all three French banks had recently plummeted over concern at exposure to Greek debt.