Draghi urges EU move swiftly on crisis measures

15th December 2011, Comments 0 comments

European Central Bank chief Mario Draghi warned Thursday the EU needs to implement measures to tighten budgetary discipline quickly if the debt crisis is to be resolved, as a successful Spanish bond sale sent shares and the euro higher.

Russia meanwhile signalled it was ready to contribute up to $20 billion to an EU-led effort to boost the funds available to the International Monetary Fund for rescue programmes which would benefit weaker eurozone states.

Draghi called on EU governments to quickly follow though on their pledge at a summit last week to drastically tighten budget discipline.

"The decisions of the European Council summit, together with the (measures) approved recently by the European Parliament, are a breakthrough for clear fiscal rules in our monetary union," Draghi told a congress in the German capital.

"However, the crisis has not ended yet. It is now important not to lose momentum and to swiftly implement all those decisions that have been taken to put the euro area economy back on course," he said.

After non-euro Britain blocked changing an EU-wide treaty, the other 26 EU states signalled their willingness to join a "new fiscal compact" imposing tougher budget rules but it is unlikely to be drafted before March.

EU plans to boost funds available to the IMF for eurozone rescues got a boost when President Dmitry Medvedev said Russia is "ready to invest."

Medvedev did not name a figure himself but a top aide said earlier Russia could contribute up to $20 billion (15 billion euros) depending on progress by EU nations towards their goal of providing a $200 billion boost to the IMF.

At the summit, EU leaders said they aimed to provide $200 billion to the IMF, which would need additional funds to handle a possible bailout of major eurozone economies like Italy and Spain.

However, these plans have been thrown into some doubt as Germany has said it would not provide any extra cash if other non-euro member nations, including Britain and the United States, do not contribute.

Spain's successfully raising of 6.0 billion euros ($7.8 billion) in a bond auction, nearly double the planned amount, also boosted sentiment.

"Investors are making clear that that are less dissatisfied with Spain's fiscal position than that of Italy," Rabobank analyst Jane Foley told AFP.

Dealers said sentiment also got a boost from the latest eurozone manufacturing and services survey which showed that a sharp slowdown in the last quarter may be easing, at least in Germany and France.

A series of US indicators on jobs and activity were also positive, especially a sharp drop in new unemployment claims, they said, after heavy losses on Wednesday.

In mid-afternoon trade, London's FTSE 100 index of top companies was up 1.09 percent, Frankfurt's DAX 30 gained 1.82 percent and in Paris the CAC 40 rose 1.02 percent. Madrid gained 1.35 percent and Milan put on 1.82 percent.

The European single currency advanced to $1.3022 from $1.2979 in New York late Wednesday when it hit an 11-month low of $1.2946 after Italy had to pay very high rates to raise fresh funding in the market.

Meanwhile, accountancy group Ernst & Young warned on Thursday that a eurozone breakup was "still possible" -- and predicted that the bloc faces the likely prospect of a mild recession in the first half of 2012.

"The latest developments in Greece, Italy and Spain and the European agreement lowers the risk of a break-up of the eurozone," E&Y said in a report.

"This risk remains however, especially since in 2012 very large amounts of sovereign debt require refinancing which could cause tensions."

The eurozone economy is expected to grow by just 0.1 percent in 2012, according to E&Y.

"The reforms agreed at the summit were a step in the right direction and the response seems to have been mildly positive," E&Y added.

"Yet investors remain very concerned about the commitment and ability of eurozone governments to implement reforms quickly."

However hanging over eurozone nations is the threat of an imminent downgrade of their credit ratings, which would likely increase their borrowing costs and make it even more difficult to overcome their debt crisis.

Standard & Poor's is expected to decide soon whether or not to downgrade 15 of the 17 eurozone members after putting them on warning last week.

And rival agency Moody's has said the crisis talks failed to produce "decisive policy measures," saying it would review the credit ratings of all EU states within the next three months.


© 2011 AFP

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