ECB to ham­mer out plans to aid weak­est len­ders

La­hore, Is­lam­abad, Karachi Tues­day, De­cem­ber 14, 2010, Muhar­ram 07, 1432

The Pak Banker - - Front Page -

FC . . . . . . Buy­ing . . . Sell­ing

BRUS­SELS: Euro­pean Union lead­ers will this week dis­cuss the cre­ation of a per­ma­nent mech­a­nism to shore up over-in­debted coun­tries as the Euro­pean Cen­tral Bank tries to ham­mer out plans to aid the re­gion's weak­est len­ders.

At a sum­mit in Brus­sels on Dec. 16 and 17, the group will con­front in­vestor skep­ti­cism about its readi­ness to stem a sov­er­eign-debt cri­sis that led to bailouts for Greece and Ire­land and threat­ens to spread. Spain's 10-year bonds fell for the past five ses­sions and the nation will fur­ther test in­vestor ap­petite for its debt when it sells bonds this week.

"I don't think there's any­thing they can come up with to set­tle things down right away," said David Owen, chief Euro­pean econ­o­mist at Jef­feries In­ter­na­tional Ltd. in London. "The prob­lems will con­tinue. Mar­kets are very much fo­cus­ing on the first few weeks of next year when not only sov­er­eigns but banks need to go to the mar­ket for a lot of fi­nanc­ing." Ger­man Fi­nance Min­is­ter Wolf­gang Schaeu­ble told ARD Tele­vi­sion yes­ter­day he ex­pects an EU agree­ment on a per­ma­nent cri­sis fa­cil­ity. Mean­while ECB of­fi­cials are fo­cus­ing on how to re­duce banks' re­liance on emer­gency liq­uid­ity mea­sures, ac­cord­ing to com­ments last week by Gov­ern­ing Coun­cil mem­bers Mario Draghi and Yves Mer­sch.

EU of­fi­cials are con­sid­er­ing mea­sures that would al­low the re­gion's res­cue fund to buy bonds of dis­tressed gov­ern­ments, the Fi­nan­cial Times re­ported to­day, cit­ing peo­ple in­volved in the meet­ings. They are also con­sid­er­ing al­low­ing short-term credit lines to na­tions strug­gling to bor­row but not in need of bailouts, the paper said.

Ger­man and French lead­ers have pledged to do what­ever is nec­es­sary to de­fend the cur­rency. The euro's sur­vival is "non-ne­go­tiable," re­quir­ing bud­get vig­i­lance and closer eco­nomic co­op­er­a­tion to over­come "struc­tural weak­nesses" within the re­gion, Ger­man Chan­cel­lor An­gel Merkel and French Pres­i­dent Nicolas Sarkozy said on Dec. 10 af­ter a meet­ing in the Ger­man town of Freiburg.

Span­ish bonds may fall this week in the run-up to the sum­mit amid spec­u­la­tion auc­tions may un­der­score ris­ing con­cern Europe's debt cri­sis is deep­en­ing. The nation is due to sell bonds ma­tur­ing in 2020 and 2025 on Dec. 16.

In­vestors may also fo­cus on Italy, where Prime Min­is­ter Silvio Ber­lus­coni faces a no­con­fi­dence vote. Law­mak­ers in Rome be­gin de­bat­ing a no-con­fi­dence mo­tion at 9 a.m. and the vot­ing, sched­uled for to­mor­row, will de­ter­mine whether Italy's rich­est man can sus­tain his govern­ment, whose term still has two years.

The yield pre­mium on Italy's 10-year debt over com­pa­ra­ble Ger­man bunds more than dou­bled this year, reach­ing a euro-era high of 212 ba­sis points Nov. 30. -PB News

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