Opinion

Paul Taylor

Euro zone staring into the abyss, waiting for ECB

Paul Taylor
Nov 28, 2011 06:56 UTC

BRUSSELS (Reuters) – The euro zone is staring into the abyss.

Unless European leaders agree on a political remedy for their sovereign debt crisis at a Dec. 9 summit, and the European Central Bank then intervenes massively to support government bonds and European banks, the euro may start to unravel.

Foreign investors are already shunning euro area sovereign bonds, European banks are desperately trying to sell assets including bonds, depositors are withdrawing growing amounts from southern European banks, and interbank lending is freezing up, forcing ever more lenders to turn to the ECB for funds.

Italy, the third largest and most vulnerable euro zone state, has a mountain of debt to refinance from January, and its short-term borrowing rate hit an alarming 8 percent on Friday.

Josef Ackermann, chief executive of Deutsche Bank and chairman of the Institute of International Finance (IIF), the world banking lobby, delivered a stark message to European Council President Herman van Rompuy last week, according to a source familiar with the conversation.

Allowing political indecision to continue into the new year risks a dramatic worsening of the crisis on financial markets, Ackermann warned Van Rompuy and other EU officials.

Think-tank proposes short-term euro zone bond fix

Paul Taylor
Nov 27, 2011 23:08 UTC

BRUSSELS (Reuters) – Euro zone states should pool their short-term borrowing via a joint fund to enable countries pursuing EU-approved policies, but unable to borrow at normal rates, to access affordable funding, a European think-tank panel proposed on Monday.

A group of bankers, economists and market experts from the European League for Economic Cooperation suggested an EMU Bond Fund as a bridging solution to the euro zone’s sovereign debt crisis, aimed at restoring market confidence.

“Our modest proposal is designed to provide a limited degree of mutual support that will be sufficient to allow adequate time to states that are themselves trying to restore their competitiveness,” the authors wrote.

Some German red lines may not be so red

Paul Taylor
Nov 21, 2011 10:44 UTC

BERLIN (Reuters) – At first sight, Germany appears to have blocked all exits from the euro zone’s blazing sovereign debt inferno. On closer inspection, some German “red lines” may be less red than others.

If Chancellor Angela Merkel wins acquiescence from European Union partners to a treaty change Berlin is seeking to impose intrusive fiscal discipline on “debt sinners”, aides hint she will permit bolder measures to fight the crisis.

Those could include more European Central Bank buying of stressed countries’ bonds in the short run, in tandem with bond insurance by the euro zone rescue fund, and accepting the idea of common euro zone “stability bonds” as a long-term goal.

Analysis – Some German red lines may not be so red

Paul Taylor
Nov 18, 2011 16:30 UTC

BERLIN (Reuters) – At first sight, Germany appears to have blocked all exits from the euro zone’s blazing sovereign debt inferno. On closer inspection, some German “red lines” may be less red than others.

If Chancellor Angela Merkel wins acquiescence from European Union partners to a treaty change Berlin is seeking to impose intrusive fiscal discipline on “debt sinners,” aides hint she will permit bolder measures to fight the crisis.

Those could include more European Central Bank buying of stressed countries’ bonds in the short run, in tandem with bond insurance by the euro zone rescue fund, and accepting the idea of common euro zone “stability bonds” as a long-term goal.

Four weeks countdown to rescue euro zone

Paul Taylor
Nov 15, 2011 16:00 UTC

PARIS (Reuters) – Europe’s leaders have less than a month to strike another grand bargain to rescue the euro zone from a worsening sovereign debt crisis. Contagion in financial markets may have to get still worse to concentrate their minds.

In that short time scale, German Chancellor Angela Merkel must unite her coalition behind potentially unpopular decisions and French President Nicolas Sarkozy must act to defend his country’s shaky AAA credit rating.

The new leaders of Italy and Greece must start enacting far-reaching austerity plans and economic reforms despite feuding politicians and social protests. A new Spanish government to be elected on Sunday must convince investors it will take bold action to restore competitiveness and clean up a housing bust.

Analysis: Four week countdown to rescue euro zone

Paul Taylor
Nov 15, 2011 15:57 UTC

PARIS (Reuters) – Europe’s leaders have less than a month to strike another grand bargain to rescue the euro zone from a worsening sovereign debt crisis. Contagion in financial markets may have to get still worse to concentrate their minds.

In that short time scale, German Chancellor Angela Merkel must unite her coalition behind potentially unpopular decisions and French President Nicolas Sarkozy must act to defend his country’s shaky AAA credit rating.

The new leaders of Italy and Greece must start enacting far-reaching austerity plans and economic reforms despite feuding politicians and social protests. A new Spanish government to be elected on Sunday must convince investors it will take bold action to restore competitiveness and clean up a housing bust.

Euro zone treads obstacle course to crisis exit

Paul Taylor
Nov 14, 2011 13:48 UTC

PARIS (Reuters) – The euro zone has to tread a narrow path sown with landmines in the next few weeks to survive perhaps the most dangerous phase of its sovereign debt crisis, policymakers and bankers say.

European Union governments have until a summit on December 9 to come up with the outlines of a much bolder and more convincing strategy, with some form of massive, visible financial backing.

The prospects are uncertain because the German government, the Bundesbank and hardliners in the European Central Bank have so far blocked key policy options. These include issuing common euro zone bonds, mutualising the euro zone’s debt stock, letting the ECB create money to fight the crisis, or act as a lender of last resort, directly or via the euro zone rescue fund.

Analysis: Euro zone treads obstacle course to crisis exit

Paul Taylor
Nov 14, 2011 13:40 UTC

PARIS (Reuters) – The euro zone has to tread a narrow path sown with landmines in the next few weeks to survive perhaps the most dangerous phase of its sovereign debt crisis, policymakers and bankers say.

European Union governments have until a summit on December 9 to come up with the outlines of a much bolder and more convincing strategy, with some form of massive, visible financial backing.

The prospects are uncertain because the German government, the Bundesbank and hardliners in the European Central Bank have so far blocked key policy options. These include issuing common euro zone bonds, mutualising the euro zone’s debt stock, letting the ECB create money to fight the crisis, or act as a lender of last resort, directly or via the euro zone rescue fund.

Tighter euro zone gains ground as debt crisis exit

Paul Taylor
Nov 14, 2011 11:47 UTC

PARIS (Reuters) – “Tell me how this ends,” U.S. General David Petraeus asked memorably of the 2003 invasion of Iraq.

Political leaders and economists in the euro zone are searching frantically for answers to the same question as a bond market rout of European sovereign debt accelerates, putting the future of the single currency in jeopardy.

Until a few weeks ago, the most likely outcome appeared to be that the 17-nation currency area would muddle through. The euro zone would bail out a few highly indebted small peripheral states, patch up its rickety fiscal governance and avoid either a break-up or a major shift towards federal integration.

Analysis: Tighter euro zone gains ground as debt crisis exit

Paul Taylor
Nov 14, 2011 06:54 UTC

PARIS (Reuters) – “Tell me how this ends,” U.S. General David Petraeus asked memorably of the 2003 invasion of Iraq.

Political leaders and economists in the euro zone are searching frantically for answers to the same question as a bond market rout of European sovereign debt accelerates, putting the future of the single currency in jeopardy.

Until a few weeks ago, the most likely outcome appeared to be that the 17-nation currency area would muddle through. The euro zone would bail out a few highly indebted small peripheral states, patch up its rickety fiscal governance and avoid either a break-up or a major shift toward federal integration.

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