x Abu Dhabi, UAEWednesday 26 July 2017

Euro zone struggling: Italian bank suffers losses; Spain crosses debt threshold

Greece's new prime minister, Lucas Papademos, in his first speech to parliament, says that his country's deficit will be higher than expected this year.

Amsterdam // The euro zone faced further pressure yesterday as Greece struggled to convince international backers that it is on its way to implementing a crucial international bailout package to save it from bankruptcy and as several other European countries faced new setbacks.

Greece's new prime minister, Lucas Papademos, in his first speech to parliament, yesterday said that his country's deficit will be higher than expected this year. He sounded determined, though, to see through austerity measures demanded by the international community and stay in the single currency euro zone.

"The new government of cooperation and me personally, we undertake the responsibility at this critical moment because the country's participation of the eurozone is at stake," said Mr Papademos, who was appointed last week to head a transitional unity government, said as he set out his policy goals.

Greece's dire economic situation has sparked worries of contagion throughout the euro zone. The country's deficit will reach 9 per cent of GDP this year, higher than previously thought.

It was not the only piece of bad news yesterday for the euro zone. Markets had responded well over the weekend to steps by Greece and Italy to tackle the financial crisis. But the relief appeared short-lived as Italy's largest bank announced enormous losses yesterday and the cost of borrowing for equally debt-ridden Spain crossed a danger threshold.In Greece, concerns over the release of the next slice of international bailout money to help service its debts re-emerged yesterday.

Antonis Samaras, the leader of the conservative New Democracy party, one of the main partners in the new transitional government, said he would not sign a pledge to stick to the package agreed in Brussels at the end of last month.

Domestic opinion is largely opposed to more austerity measures.

Mr Samaras said his word to support the package and the government should be good enough but that he would cut taxes if he won elections scheduled for February.

The manoeuvre evinced a strong rebuke from the European Union in Brussels. A spokesman for the economic and monetary affairs commissioner, Olli Rehn, said: "We continue to wait for a clear and unequivocal expression, in writing, about the engagement of the responsible political forces in Greece to the decisions taken on October 26."

Mr Samaras emphasised that strategies were needed to help rekindle growth in Greece, which has experienced years of recession.

Many Greeks blame austerity measures demanded by the EU and the International Monetary Fund for the deepening downturn.

Mr Samaras, speaking to MPs, cited a 10 per cent drop in government revenue in October compared with the same month last year.

The political posturing by Mr Samaras underlined the difficulty Mr Papademos faces as he starts to implement the measures.

Before the speech in parliament, Janis Emmanouilidis, at the European Policy Centre in Brussels, predicted that the new prime minister had to perform a balancing act.

"He will be in a difficult position to convince people in Greece. At the same time, he will have to deliver a speech that sounds convincing to people outside Greece."

But the speech was not as important as the formation of the government, said Mr Emmanouilidis.

"The fact they got together a government of unity is already a positive sign that was necessary, that is the key," he added.

Mr Papademos's speech was the first step in getting his government approved by parliament. A confidence vote, which he is likely to win, is scheduled for tomorrow.

The tension in Greece came amid turmoil elsewhere in the euro zone.

Italy's UniCredit bank said it lost €10.64 billion (Dh53bn) in the third quarter of 2011 due to "the effects of the overall slowdown in the global economic environment, coupled with the European sovereign debt crisis and continued significant market volatility".

Italy's cost of borrowing climbed again yesterday, after it had come down from a dangerously high level last week. In Spain, where elections are due on Sunday, borrowing costs breached 6 per cent.

Both countries can borrow money only at several times the rate Germany pays, further weakening their already fragile economies.

The German chancellor, Angela Merkel, speaking to her CDU party, addressed the sentiments of many Germans who do not want to pay for other countries' debts.

"We need Europe because it is the basis of our well-being," she said. "Sixty per cent of our exports go to the European Union, nine million jobs alone depend on it."

Mrs Merkel is pushing for changes in the euro treaty that will allow more oversight of governments that breach agreed debt ceilings.

 

foreign.desk@thenational.ae

* Additional reporting by Agence France-Presse and Associated Press