Europe debt crisis deepens after Spain downgrade
Europe's debt crisis deepened on Wednesday after Spain was slapped with a credit downgrade and pressure mounted for a quick approval of a bailout for Greece that could run to 120 billion euros.
The head of the International Monetary Fund, Dominique Strauss-Kahn, flew to Berlin in a bid to drum up support for a planned EU-IMF rescue for Greece and warned confidence in the entire European single currency area was at stake.
"It is perfectly clear that the negotiations with the Greek government, the European Commission and the IMF need to be accelerated," German Chancellor Angela Merkel said after meeting with Strauss-Kahn.
"We hope they can be wrapped up in the coming days and on the basis of this, Germany will make its decisions," she told reporters.
Germany has said it will lend Greece the money it needs to avoid a default only if Athens promises to make further budget cuts.
But there were signs of a hitch in the negotiations after Greek Labour Minister Andreas Loverdos told reporters that Athens was resisting demands by the EU and the IMF to cut salary bonuses in the private sector.
"We have been asked for a cut which we do not accept," Loverdos said.
Financial markets meanwhile reeled for a second day, following credit downgrades for both Greece and Portugal on Tuesday that heightened investor fears that the Greek debt drama is spreading to other weakened euro nations.
The European single currency plunged to its lowest level against the dollar in more than a year and was trading at 1.3128 dollars in late trading, while bond and stock markets across much of Europe were also sharply down.
"The downgrade of Spanish government debt by S&P is another alarming sign that the effects of the Greek crisis are spreading," said European economist Ben May at research firm Capital Economics in London.
S&P lowered Spain's long-term sovereign credit rating to "AA" from "AA+" and said the outlook was negative, meaning there could be a further downgrade.
Credit ratings are closely watched by financial market professionals as a guideline on whether or not to invest in stocks, bonds and currencies.
Spain appealed to those investors, with Deputy Prime Minister Maria Teresa de la Vega saying her country would cuts its debts. "I want to send a message of confidence to the population and of calm to the markets," she said.
The Greek crisis has snowballed in recent months and is seen by many as a sign of things to come for other highly-indebted economies in Europe.
The crisis is now at a crunch point as Greece has said it needs emergency loans by May 19 in order to avoid defaulting on its debts.
Greek Prime Minister George Papandreou told his cabinet a "common effort" was needed from the EU and eurozone to "prevent a fire that flared up with the global crisis from spreading to the entire European and world economy."
European Central Bank President Jean-Claude Trichet warned time was fast running out and Germany must quickly decide whether to contribute its share.
"There is an absolute necessity to decide very rapidly," he said after meeting top officials in Berlin.
Strauss-Kahn struck a similarly ominous note, saying: "It is the confidence in the whole zone that is at stake" -- a reference to the 16-nation eurozone.
Herman Van Rompuy, the European Union's president, said the eurozone's leaders would meet around May 10 for a summit on the debt crisis.
Two German lawmakers, who met with Strauss-Kahn and Trichet, said the size of the bailout package could be as high as 120 billion euros (158 billion dollars) over three years, although Merkel declined to give a precise figure.
Greece meanwhile acted to stop speculators operating on the Athens stock exchange after having its rating slashed to "junk" status on Tuesday -- a move that triggered investor concern of a possible debt default.
The interest rate Greece has to pay to borrow money was around 9.919 percent late on Wednesday, higher than for emerging markets like India and Mexico.
The Greek government also faced growing domestic discontent as protests mounted and the country braced for a general strike next Wednesday.
Many Greeks are against the bailout as they believe the EU and the IMF will impose overly stringent conditions in return for the loans.
© 2010 AFP