Eurozone’s debt crisis dominates talks in Davos

Europe’s debt crisis, and its effect on the euro, has been acute in recent months, though the continent’s leadership was lauded for doing what it could to get through the financial crisis.

Speaking yesterday on the second day of the World Economic Forum, JP Morgan chief executive James Dimon, said governments were right to act swiftly on government debt restructuring, rather than risk a run on the continent’s banks.

Europe “did the only good choice, which is to get through this crisis, because if you don’t fix it here, you’re going to fix it there, which is in the banking system,” he said.

The remarks came as the euro, and Europe, captures the attention of the five-day meeting of the Forum. Anywhere you go, it’s hard to escape either.

Not only are participants frantically trying to make up for failing last year to predict Europe’s sovereign debt crisis – that sent the euro into freefall – by holding back-to-back panels on the common currency and the future of the European project as a whole.

They’re also feeling the currency shock in their pockets, as hotels, restaurants and bars in the Swiss ski resort of Davos price in francs, whose value has surged against the euro in recent months.

Hungarian-born billionaire George Soros warned government and business leaders that the euro – used by 17 European Union members – could end up splitting Europe in two.

Some countries, like Germany, have benefited from the lower euro thanks to strong export industries. Others, such as Greece and Portugal, are struggling to meet the strict fiscal demands imposed by the common currency and have been forced to slash state spending as a result.

“The euro was supposed to bring about convergence, and effectively it created divergence and that is now being perpetuated,” he said. “You’re going to have a two-speed Europe, and that is going to be politically very disruptive.”

Mr Soros, who made much of his fortune speculating on failing currencies, said the euro is here to stay. “But it could put into motion this very divisive political force of two Europes,” he warned.

Greek Prime Minister George Papandreou was to join European Central Bank President Jean-Claude Trichet and Nick Clegg, Britain’s deputy prime minister, for a panel about the future of Europe later yesterday that is sure to focus much of its attention on the continent’s economic woes.

Earlier, French President Nicolas Sarkozy delivered a speech on the G20, whose meeting in his country this year will likely tackle global economic problems including currency imbalances.