The European Union says it may convene a crisis summit this week amid mounting pressure for a quick response to prevent the bloc's debt woes from spreading to Italy and Spain. Underscoring the threat, Moody's has cut Ireland's bonds to junk status.
AFP - Eurozone leaders mulled convening a crisis summit in coming days as global pressure mounted Tuesday for a swift and solid response from Europe to stop debt contagion devastating prime economies Italy and Spain.
Ratings agency Moody's meanwhile cut Ireland's bonds to junk status and warned of further downgrades as the eurozone economy struggles to pull out of a financial crisis.
As the debt crisis blazed a trail of market damage worldwide, sapping confidence in the euro, finance ministers from the 17-nation eurozone had a sharp wake-up call from former colleague Christine Lagarde, new head of the IMF.
She welcomed their vows the previous day to shore up eurozone stability, but added "we look forward to the prompt implementation of the important measures outlined."
Ministers pledged after marathon eight-hour talks late Monday to strengthen the size and scope of a multi-billion-euro fund set up in the aftermath of Greece's May 2010 rescue.
The fund could help buy back Greece's mountain of debt, enabling the country to borrow at better rates on the markets, EU officials said. It could also buy debt on the secondary market, relieving Greece's debt mountain.
But a pledge to speed up efforts to craft a bailout for Athens expected to be almost as big as a 110-billion-euro rescue last year failed to hold the line on financial markets, with stocks and the euro tumbling and borrowing costs for Italy and Spain at euro-era peaks.
In Brussels, diplomats said "a meeting of eurozone leaders is under consideration," while European Union president Herman Van Rompuy said in Madrid that a summit "has not been excluded".
Meanwhile, splits remained over the critical issue of private investors shouldering part of the cost of a second rescue, which rating agencies say would trigger a default rating, and which the European Central Bank says would lead it to cut off Greek banks.
Greece said it would not accept any form of default, and Spain strongly attacked the way the whole issue had been raised, saying it was not settled yet, despite reassuring statements from the eurozone overnight on Monday.
"We want total coverage of our borrowing requirements and for the stability of the Greek financial system," said Finance Minister Evangelos Venizelos.
There is concern too about the impact of any default rating on European banks which hold sovereign debt, and the European Commission said it would support any EU banks failing stress tests on Friday.
As market turmoil continued for a second day, Van Rompuy told a news conference: "Let me be very clear that there is a very strong commitment at the highest level to do whatever is necessary to safeguard the financial stability of the euro area."
But Moody's Investors Service said it had reduced Ireland's government debt ratings by one notch, to Ba1 from Baa3, saying there was a "growing possibility" that the country will need more bailout aid in late 2013 when the current European Union-International Monetary Fund support programme ends.
Moody's also cited the "increasing possibility" that private sector holders of Irish debt will have to take part in any talks on a second rescue program "in line with recent European Union government proposals."
"The outlook on the ratings remains negative," the US-based international firm said.
The row over bringing banks and other private creditors to bear a share in a Greek bailout to ease the European taxpayer's burden has rumbled for week.
This approach, opposed by the ECB, is favoured by northern governments such as Germany, The Netherlands and Finland.
Europe's member states "must start speaking with one voice," said analyst Sony Kapoor, managing director of think-tank Re-Define. "Every new crisis headline fuels a further deterioration of the crisis and triggers more contagion."
Among proposals released by the ministers overnight on Monday was a strengthening of the European Financial Stability Fund (EFSF), the safety net which has a current lending capacity of 440 billion euros ($609 billion).
This would be hard put to fly to the rescue of Italy and Spain. The combined economies of crisis-hit Greece, Portugal and Ireland represent only half the size of Italy's.
On Greece, no formal decisions are on the table, with a range of proposals including longer loans and lower rates, left in the hands of a working group.
Date created : 2011-07-13