G7 ministers to hold emergency call
Spanish financial crisis, ‘ weakness’ in some European banks top concerns, Canada’s Flaherty says
TORONTO/ BERLIN — Finance chiefs of the Group of Seven leading industrialized powers will hold emergency talks on the eurozone debt crisis today in a sign of heightened global alarm about strains in the 17- country European currency area.
With Greece, Ireland and Portugal all under international bailout programs, financial markets are anxious about the risks from a seething Spanish banking crisis and a June 17 Greek general election that may lead to Athens leaving the eurozone.
Canadian Finance Minister Jim Flaherty said ministers and central bankers would hold a conference call, raising pressure on the Europeans to act.
“The real concern is Europe the weakness in some of the banks in Europe, the fact they’re undercapitalized, the fact other European countries in the eurozone have not taken sufficient action to address undercapitalization of banks and building an adequate firewall,” Flaherty said.
The disclosure of the normally confidential teleconference came as European Union paymaster Germany said it was up to Spain, the latest eurozone country in the markets’ firing line, to decide if it needed financial assistance, after media reports that Berlin was pressing Madrid to request aid.
German Chancellor Angela Merkel and leaders of her centreright coalition said in a joint statement: “All the instruments are available to guarantee the safety of banks in the eurozone.”
They effectively ruled out Spanish calls to allow eurozone rescue funds to lend money directly to recapitalize banks, which are weighed down with bad property debts, without the government having to take a bailout program.
Berlin is pressing reluctant eurozone partners, including close ally France, to agree to surrender more fiscal sovereignty as part of a closer European fiscal union.
A G7 source said there were concerns about the risk of a bank run in Spain, which is struggling to recapitalize nationalized lender Bankia and smaller banks stricken by the collapse of a property bubble.
“There’s a heightened sense of alarm over developments in Europe, particularly in Spain,” the source told Reuters. “There is concern on whether there will be a bank run in Spain that could have repercussions beyond the eurozone.”
Spain’s borrowing costs have soared to about 6.6 per cent for 10- year bonds with the risk premium over safe haven German Bunds reaching a euro era record. Madrid plans to issue $ 1.3 to 2.6 billion in 10- year debt on Thursday in a key market test.
The G7 source said the United States, the current G7 chair, was unwilling to allow International Monetary Fund money to be used to support the eurozone, so there was little prospect of the global community acting as one to contain the crisis.
In one ray of light for the eurozone, Portugal’s international lenders said its year- old bailout program was on track, offering strong support for Lisbon as it seeks to avoid following Greece into a second rescue package.