Europe under pressure to find lasting fix

Euro Zone: Policymakers in the euro zone are under pressure to find a lasting fix to the single currency's debt crisis.

As the Group of 20 (G20) leading and emerging economies gathered in Mexico, Robert Zoellick, the World Bank President, said it was "an absolutely critical time" and warned Europe not to squander this opportunity for decisive action. AFP PHOTO/CRIS BOURONCLE
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Euro-zone policymakers are under pressure to find a lasting fix to the single currency's debt crisis as the Group of 20 (G20) leading and emerging economies gathers in Mexico.

G20 officials want to hear whether the euro zone is prepared to move towards fiscal or political union to bolster stability.

"Europeans have to display the awesome firepower that is at their disposal, and they have to transmit the message that they're willing to use the awesome firepower," said Angel Gurria, the head of the Organisation for Economic Cooperation and Development.

The meeting comes as market confidence over Greece's election evaporated yesterday.

During afternoon trading, the benchmark Stoxx 600 was only 0.1 per cent higher at 244.45, with the euro trading 0.1 per cent lower at US$1.2619. The price of North Sea Brent crude dipped 94 cents to $96.67 per barrel.

"A new Greek coalition government is unlikely to be able to restore economic growth or deliver effective reform without substantial financial help from the rest of the euro area," Trevor Greetham, the director of asset allocation at Fidelity Worldwide Investment, said in a research note.

The New Democracy Party yesterday began talks to form a coalition government in Athens after winning the largest number of votes in Sunday's election.

Antonis Samaras, the party leader, has pledged to renegotiate the terms of the country's €282 billion (Dh1.3 trillion) bailout.

Investors had feared a victory for its rival, the second-place Syriza party, would mean a hasty Greek exit from the euro. Relief at the result sent stocks in Asia rising earlier in the day.

But fresh concerns soon seeped into market sentiment. Yields on Spain's 10-year government bonds rose above 7 per cent.

Borrowing costs for the country have now reached levels that prompted Greece and other euro-zone nations to receive bailouts.

"The election result is good news for Greece but that does not necessarily mean good news for Spain and Italy," said Michiel Verduijn, an economist at Rabobank.

The euro-zone crisis "will not ease until a long-term roadmap for the euro zone is outlined", he added.

European policymakers will be under pressure to come up with a long-term solution to the debt crisis during the two-day gathering in the Mexican resort of Los Cabos.

"We're going to continue to make the case," David Plouffe, a senior adviser to Barack Obama, the US president, was quoted by Reuters as saying. "There will be progress made over the next couple days but no one should expect a firm resolution."

Robert Zoellick, the World Bank president, was quoted by the news wire as saying it was "an absolutely critical time" and warning Europe not to squander this opportunity for decisive action. "We are waiting for Europe to tell us what it is going to do," Reuters quoted him as saying.

The expansion of the IMF's firepower is also likely be on the agenda. The G20 is expected to confirm it will double the IMF's resources with an extra US$430bn (Dh1.57tn) in loans to help it to fight the euro-zone turmoil.

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