Italy and France yesterday called for emergency G7 talks and the EU said it is working “night and day” to ready new rescue funding as eurozone lending costs soared and stocks plunged on alarm over renewed global recession.
As Europe scrambled to head off pressure on the single currency zone, Prime Minister Silvio Berlusconi said after telephone talks with President Nicolas Sarkozy that G7 finance ministers would meet “in a few days”.
Italy, which along with other euro giant Spain is in the eye of a financial storm, will speed up implementation of a package of austerity measures aimed at achieving budget balance, Mr Berlusconi said in Rome after a wave of market panic. “We believe it is opportune to accelerate the measures,” Mr Berlusconi said. “There is a very particular attention on us on the part of international speculation and we have to put a stop to it,” he said. Italian shares plunged 13.12 per cent this week while investors, fearing the country’s slow growth means it will get caught up in a debt trap, sold off their bonds, sending rates of return over six per cent.
Seeking to soothe tension after contagion even began to threaten France on the bond market, the EU’s economic affairs commissioner Olli Rehn rushed back to Brussels and announced he will propose new, common “euro-bonds” next month.
Until now taboo, these would allow eurozone governments to raise monies needed to run their countries based on guarantees from the entire 17-country bloc of 332 million people.
Holidaying German Chancellor Angela Merkel, Spanish Prime Minister José Luis Rodriguez Zapatero, as well as Sarkozy, Mr Berlusconi, and non-euro leader British Prime Minister David Cameron, launched a flurry of phone discussions, also involving EU President Herman Van Rompuy.
An EU official in Brussels said no emergency eurozone summit was on the cards.
Mr Rehn insisted that the input of G7 and G20 partners – bringing in the United States, Japan, Britain and powerful, big developing economies like Brazil, China, India and Russia – will be of “critical importance” in wider efforts to resolve the spiralling chaos.
But China said debt deals in Europe and the US, where the permitted ceiling was again raised, would not be enough to save their respective economies.
“Concrete steps” must be taken to rebalance the global economy, said a commentary published by the official Xinhua news agency.
It recommended troubled eurozone countries should look to reforms not bailouts.
“Only by introducing reform can they save themselves,” it added.
British Foreign Secretary William Hague called a crisis meeting there, saying London would take the “necessary action” to combat the crisis engulfing its biggest trading partner.
Mr Rehn said the small print on the new monies and powers would be ready “in weeks, not months”.
The European Commission, the European Central Bank and the European Financial Stability Facility (EFSF) are each “working night and day to put flesh on the bones” of an agreement struck at a July 21 summit.
He maintained that he did not believe Spain and Italy, the two core countries most under pressure, would need a financial rescue – even if bailout funds may eventually need to be increased.
Both have committed to budget cuts and reforms, for example of labour law.
The July emergency summit was called over fears the Greek debt crisis could spill over to the eurozone’s third- and fourth-largest economies.
Greek Prime Minister George Papandreou urged leaders yesterday to nail down the details “now”.
The second Greek rescue and the changes to the fund need ratification by all member nations, in some cases by national Parliaments.
But Mr Rehn said the time required was the “necessary – and legitimate – price to pay for living in democracies”
Hundreds of billions of dollars in value were lost this week during a global stocks sell-off sparked by prospects of a slowdown in the US economy as well as eurozone debt concerns. US stocks again fell sharply yesterday, alongside Europe’s major exchanges.