European leaders seek Asian support on debt crisis

VIENTIANE - Dozens of European and Asian leaders will gather in impoverished Laos on Monday for a major summit set to be dominated by the eurozone debt crisis and growing territorial tensions in the region.

Top European officials including French President Francois Hollande and Italian Prime Minister Mario Monti are due to spearhead efforts to reassure Asia that the long-running eurozone crisis is finally coming under control.

The diplomatic offensive is seen as a sign of the growing importance that debt-laden Europe places on Asia's fast-growing economies, and its desire to counter increased US engagement in the region.

"We believe Asia is more important every day in terms of economic development," European Commission chief Jose Manuel Barroso told reporters in Bangkok ahead of the summit.

"Europe is one of the most important partners in Asia in terms of investment and trade," he said. "We want to discuss the possibility of trade and investment but also the challenges of stability and security in the region."

European Union president Herman Van Rompuy is also among those converging on Laos, a landlocked country of just six million people on the verge of joining the World Trade Organization as it opens up its fast-growing economy.

But German Chancellor Angela Merkel -- who warned over the weekend that it would take more than five years to overcome the euro debt crisis -- will not attend, sending her foreign minister instead.

The Asia-Europe Meeting, held every two years, provides an opportunity to boost links between two regions that together account for about half of the global GDP.

Europe "should be looking to Asia for greater economic activity", Philippine Foreign Secretary Albert del Rosario told AFP in the Laos capital Vientiane ahead of the two days of talks.

"We are able to offer many areas of investment and trade for them. I think the opportunity is there for both sides," he added.

Europe's leaders may also lobby Chinese Premier Wen Jiabao to deploy some of Beijing's trove of about $3 trillion in foreign exchange reserves -- the largest in the world -- to invest in EU bailout funds.

Asian leaders for their part are expected to press Europe to take swift action to calm a crisis that has battered the world economy and set back efforts to reduce global poverty.

"A stronger Europe, the sooner the better, is good for everybody around the world," Indonesian Trade Minister Gita Wirjawan told reporters in Vientiane.

Some Asian participants, including the Philippines, also want to put Asia's maritime sovereignty disputes on the table, but China is likely to resist.

China claims sovereignty over nearly all of the South China Sea, home to vital shipping lanes and believed to be rich in oil and gas deposits. The Philippines, Brunei, Malaysia, Vietnam and Taiwan also claim parts of the sea.

Separately, China, Japan and South Korea are embroiled in various territorial disputes that have stoked tensions in the region.

About 50 leaders or their representatives -- including Myanmar President Thein Sein -- are due to attend the gathering, which comes against a backdrop of improving ties between Europe and Southeast Asia thanks to a series of dramatic political reforms by the country formerly known as Burma.

Outrage in the West over the former junta's human rights abuses -- including the longtime detention of Nobel laureate Aung San Suu Kyi and other political prisoners -- soured the atmosphere of past ASEM meetings.

But since a reformist government took power last year, overseeing the release of political detainees and Suu Kyi's election to parliament, the West has begun rolling back sanctions and foreign firms are lining up to invest.

In recent months, however, deadly Buddhist-Muslim clashes in western Rakhine state have cast a shadow over the reform process, and European leaders may use the summit to call for an end to the bloodshed.

Security concerns including Iran, North Korea and Syria are also believed to be on the agenda, along with global terrorism, climate change and sea piracy.

source: interaksyon.com

Eurozone headed back towards recession

BRUSSELS - The eurozone veered back towards recession with the latest growth figures out on Tuesday showing its economy shrinking by 0.2 percent and analysts warning of falling economic output right through 2013.

Germany steered clear of the worst of the debt crisis to post better-than-expected growth of 0.3 percent in the period from April to June, and France held on for zero growth, but the experts saw precious little good news going forward.

"The big picture is that the economic growth required to bring the region's debt crisis to an end is still nowhere in sight," said London-based Jonathan Loynes of Capital Economics.

"The slowdown has spread from the periphery into the core," said Tom Rogers, an analyst with Ernst & Young in London, one of many analysts to highlight a growing "north-south divide."

"Positive readings in Germany and the Netherlands (0.2 percent) are to be welcomed, but with conditions in the rest of Europe deteriorating further, and export markets farther afield also cooling, it is looking increasingly likely that output in the core economies will contract during the second half of the year," Rogers added.

Italy's economy lost 0.7 percent during the quarter and Spain 0.4 percent, with the economic implosion in Greece continuing unabated -- a 6.2 percent contraction after a 6.5 percent contraction in the first quarter of 2012.

These were to be expected, but, said Howard Archer of IHS Global Insight, it was "notable and worrying that GDP also contracted in Belgium and Finland," by 0.6 percent and 1.0 percent respectively.

Tipping an overall GDP contraction for the eurozone in 2012 of 0.5 percent, he said these countries "are being dragged down by the problems of Greece, Spain, Italy and Portugal."

He said IHS forecasts thereafter "are based on the assumption that Greece leaves the eurozone around mid-2013.

"We expect a strong policy response to limit the fall-out but modest eurozone recession is still expected as a consequence in the second half of 2013," Archer added, tipping a 0.2 percent contraction for next year too.

A recession is commonly defined as two consecutive quarters of contracting activity. The eurozone posted flat growth in the first quarter of this year.

The flash estimates from the EU also show how badly Europe now lags behind its main economic and trade partners, with comparative Eurostat figures saying GDP rose by 2.2 percent quarter-on-quarter in the United States and 3.6 percent in Japan.

"Only once the Eurocrisis is back under control can a rebound in investment lead to a return to trend growth in core Europe," said Christian Schulz of Berenberg in a note issued in London.

He highlighted France as a case apart between Germany and similarly-structured neighbouring economies such as Austria that are broadly holding on, and the tumbling economies of the south.

"In terms of economic confidence, it remains firmly part of core Europe, but it is losing competitiveness ... France has to bring down its excessive public deficit eventually," he underlined.

Schulz noted France is continuing to lose competitiveness to southern eurozone countries going through difficult adjustments, with imports outpacing exports and taking the trade deficit to record highs.

French Finance Minister Pierre Moscovici, whose Socialist government has to cut its budget deficit from around 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013, called the result "very weak" but held to the government's forecast for 0.3 percent growth in 2012.

Germany's economy grew fractionally faster than the 0.2 percent forecast by analysts, but slower than the 0.5 percent seen in the first quarter.

"Positive impulses came from both consumer spending and from net foreign trade," national statistics office Destatis said.

Not all experts were gloomy for Germany's prospects, Newedge Strategy analyst Annalisa Piazza stating that "the German economy remains relatively resilient and the expected effects of the eurozone debt crisis remained limited."

source: interaksyon.com

US raises pressure for euro zone crisis action

FRANKFURT/BERLIN - The United States raised pressure on euro zone leaders to take decisive action to solve the region's debt crisis, notably by lowering troubled members' borrowing costs, on the eve of a crucial European Central Bank meeting.

U.S. Treasury Secretary Timothy Geithner said the euro zone must take steps including "bringing down interest rates in the countries that are reforming and making sure those banking systems can provide the credit those economies need".

He made the comments in an interview with Bloomberg Television recorded in Los Angeles on Tuesday and broadcast on Wednesday, a day after he flew to Germany to meet Finance Minister Wolfgang Schaeuble and ECB President Mario Draghi.

Italy and Spain, the euro zone's fourth and third largest economies, could lose access to credit markets as the risk premium investors demand to hold their bonds rather than safe-haven German debt has spiraled to levels considered unsustainable in the long term.

But German Vice-Chancellor Philipp Roesler rejected pressure for the ECB to step in and cap the borrowing costs of troubled euro zone countries, saying the central bank should stick to fighting inflation and not ease the market incentive to reform.

"If you take away the interest rate pressure on individual states, you also take away the pressure on them to reform," Roesler, economy minister and leader of the Free Democrats, junior partners in Chancellor Angela Merkel's centre-right coalition, told reporters in Berlin.

He also reaffirmed Germany's opposition to letting the euro zone's rescue fund borrow from the central bank to buy government bonds, calling it "the road to an inflation union".

Draghi last week said that the central bank would do whatever it takes to preserve the euro, stirring speculation it might take more radical steps when the ECB's policy-setting Governing Council holds its monthly meeting on Thursday.

Geithner said Schaeuble and Draghi had walked him through plans they were putting in place to try to solve the crisis, but he cautioned against expecting immediate action.

"What you know, from what Europe has said, that they are committed to doing what's necessary to hold the Europe Union together," said Geithner. "I absolutely believe they have the means to do it."

Geithner said past financial crisis showed that the longer it took to address the issues, the more they cost.

"I believe they understand that. That's why they've signaled they are prepared to move further. Now again, this is going to take time," he added.

Market expectations of a major ECB move this week have faded after a spike following Draghi's comments, with European shares slipping and a rally in Spanish and Italian bonds petering out.

But those traders and investors who expect action on Thursday would sell the euro and European shares and drive up Spanish and Italian bond yields if the ECB did nothing.

Nick Parsons, head of markets strategy at nabCapital in London, predicts the euro could fall a couple of U.S. cents from current levels, while bond market analysts expect Spanish yields to reach new euro-era highs if the ECB does not act.

Monti on tour

Italian Prime Minister Mario Monti, touring Europe to press for action to bring down Rome's borrowing costs, made his pitch to euro zone hardliner Finland on Wednesday, saying Italy did not need an assistance program but it might in future need "a breathing break" from high interest rates.

"The basic idea is that Italy does not seem to need special aid right now, especially not to save its economy," Monti was quoted as saying by Finnish daily Helsingin Sanomat on the day he was due to meet Prime Minister Jyrki Katainen.

He added that it was frustrating that reforms his government has carried out are not reflected in interest rates. The euro area financial crisis has sent the group's third largest economy's borrowing costs spiraling.

Central bank sources have told Reuters that intervention could be at least five weeks away because Draghi's comments had not been agreed in advance with the Governing Council, and other elements must first fall into place.

The sources said the ECB could revive its mothballed sovereign bond-buying program in tandem with the euro zone's rescue funds, but Spain would first have to request assistance, which it has resisted so far.

Euro zone leaders would have to agree to the rescue funds buying up government bonds, and the German Constitutional Court would have to uphold the legality of the bloc's permanent rescue fund in a ruling due on September 12.

The leaders have spent the past week issuing statements promising to take whatever steps are necessary to rescue the currency, but none has raised expectations as high as Draghi, who heads the only federal European institution able to act swiftly and decisively.

However, the ECB is divided with Germany's influential Bundesbank opposed to reviving government bonds or giving the euro zone rescue fund a banking license so it can borrow from the central bank to buy unlimited quantities of bonds.

Draghi met Bundesbank chief Jens Weidmann privately earlier this week to try to reconcile differences on what action the bank might take. Neither bank would comment on the meeting.

The Bundesbank released on Wednesday a June 29 interview for an in-house publication in which Weidmann said governments expected too much from the central bank, and what they wanted did not always make economic sense.

"Politicians overestimate the central bank's capacity and place too many demands of it," he said.

"Whether it's about interest rates or any sort of special measures, in the end it always comes down to the same thing: trying to rope the central bank into meeting fiscal policy objectives."

Weidmann said the Bundesbank would continue to defend its positions firmly "so that the (European) monetary union remains a stability union".

With the economy slowing and inflation under control, other options on the ECB's radar screen include a possible further cut in interest rates and a further loosening of rules on the collateral it will accept to lend funds to banks.

Unemployment in the euro zone in June hit its highest level since the single currency was born, at 11.2 percent, while data released on Tuesday showed capital fleeing Spanish banks at a growing rate.

article source: interaksyon.com