EU scrambles to contain global debt heat
European Union leaders rushed on Wednesday to tackle ramped-up pressure over sovereign debts, as global markets tumbled amid Chinese anger at an 11th-hour US debt deal.
Italian Finance Minister Giulio Tremonti rushed to Luxembourg for nearly two hours of emergency talks with eurozone chief Jean-Claude Juncker, after Italy -- the world's eighth-biggest economy -- took a hammering on bond markets.
China piled on the broader pressure when its official Xinhua news agency said America had "failed to defuse Washington's debt bomb for good, only delaying an immediate detonation by making the fuse an inch longer."
But Tremonti and Luxembourg premier Juncker, who heads the 17-nation eurogroup of finace ministers, emerged from their talks with only an enigmatic pledge to "continue our meditation."
Italian Prime Minister Silvio Berlusconi put back a planned address to parliament in Rome until after markets closed, at 5:30 pm (1530 GMT), as stocks slid badly and 'safe-haven' gold hit fresh record high levels.
At Unicredit Research in Milan, economist Chiara Corsa said that Italy, which recently announced big budget measures, had to work fast to present a new plan speeding up the recent steps but also opening up competition and reforming the labour market, and launching privatisations.
There should also be a tax reform to shift taxes away from income to goods, all to spur the economy.
Spanish Prime Minister Jose Luis Rodriguez Zapatero, cutting short a family holiday to return to Madrid, called crisis talks with his Finance Minister Elena Salgado after the debt risk premium for Spain, the eurozone's fourth-biggest economy, again soared to a record high level.
Their meeting would "analyse the lastest financial market movements," the prime minister's office said.
Global investors are concerned about the eurozone and US debt mountains and the prospects that growth could falter.
The risk premium demanded for buying Spanish 10-year bonds over safe-bet German bonds surged early on Wednesday to 407 basis points -- the highest since the introduction of the euro in 1999.
Meantime, European Commission chief Jose Manuel Barroso stepped up contacts with Zapatero and other leaders, his staff said, ahead of a statement on markets expected during the afternoon.
However, Commission spokeswoman Carolina Kottova said there was "no discussion on helping Italy" and stressed that the European Union executive was focused on ensuring that the new Greek rescue plans sketched out two weeks ago "will be put in place as agreed."
Barroso's finance chief Olli Rehn also interrupted holidays by a Finnish lake to talk with Tremonti by telephone early on Wednesday, his acting spokeswoman Chantal Hughes said.
Hughes said that Rehn had reaffirmed confidence that "the Italian authorities are doing what is necessary to put the country back on track."
The eurozone crisis has already sent Greece, Ireland and Portugal running for bailouts from the European Union and International Monetary Fund.
But the economy in Italy is twice as big as the three combined and has a public debt that amounts to 120 percent of its gross domestic product, way above the EU limit of 60 percent.
Analysts cite high debts, low growth and political in-fighting as three reasons why Italy is in deepening trouble.
"Just for once we ask the premier to think only of the country," economist Ferruccio De Bortoli wrote in the Corriere della Sera newspaper, adding: "The house is on fire and -- before anything else -- we need to put it out."
The government hinted it could accelerate fiscal adjutment, and released nine billion euros for big construction projects largely in the impoverished south in an attempt to boost growth.
European Union President Herman Van Rompuy reiterated Tuesday that "current evaluations of risk on the markets do not correspond at all to fundamentals," adding it was "ridiculous" to imagine Italy or Spain defaulting.
The July 21 eurozone summit agreed a 160-billion-euro ($226 billion) rescue of Greece -- involving the private sector for the first time -- and also agreed to boost the scope of its rescue fund, the European Financial Stability Fund (EFSF).
Amid growing concerns that the 440-billion-euro fund would be insufficient to rescue the likes of Italy, a diplomat told AFP that there are "absolutely no indications" that national governments are willing to up the size of the EFSF war-chest.
© 2011 AFP