World economic leaders turned their fire on the eurozone Saturday at a Davos forum increasingly frustrated by the single currency bloc’s struggle to come to grips with its debt crisis.
At the forefront of concerns were write-down talks in Greece, which had dragged on into the weekend and now threaten to overshadow an EU summit on Monday designed to showcase the continent’s plans to escape the debt trap.
But senior officials from outside the eurozone also argued that Europe has not got on top of more long-term problems undermining the single currency, and needs to move further and faster in integrating eurozone economies.
“The fact that we’re still, at the start of 2012, talking about Greece again is a sign that this problem has not been dealt with,” British finance minister George Osborne told a public panel of senior finance officials.
“The danger here is that the tail wags the dog throughout this crisis, in other words the inability to deal with the specific problems in the periphery causes shockwaves across the whole European economy and the world economy.”
Canada’s central bank chief Mark Carney, who chairs the international bank regulator the Financial Stability Board, said Europe’s woes were holding back the recovery and had effectively cut global growth by one percent last year.
European and eurozone officials at the World Economic Forum, an annual get-together of the great and the good in global business and politics, have spent the week attempting to drum up optimism on the debt talks.
But as the talking shop drew to an end, Greek leaders were still locked in talks with private lenders over the details of a plan to wipe 100 billion euros from their sovereign debt — and thus avoid a messy default.
Meanwhile, Athens was distracted by another dispute, when European officials leaked the claim that Berlin wants the European Commission to take full charge of the Greek budget and oversee its austerity strategy.
Greek officials reacted with fury at this attack on their sovereignty, and Brussels was forced to concede that, while it would reinforce its “monitoring capacity”, final fiscal responsibility would stay with Athens. Related article: Greece ‘will not cede budget control to EU’
The drawn-out debt talks have undermined attempts to contain the crisis and shore up bigger eurozone economies, to the frustration of leaders from the emerging economies and the rest of the developed world.
“You need decisive action. You need overkill. Confidence must come from decisive actions from governments,” declared Donald Tsang, chief executive of Hong Kong’s autonomous regional administration.
“Two months ago in Greece you could make do with a 20 percent haircut, now even 50 percent is not easy. Maybe 70 percent is needed, so do it quickly. You need resolution and decisiveness.”
A Greek finance ministry official reported “great progress concerning technical and legal matters” but said there “is still a lot of work left to do”, leaving it open as to whether there would be a deal this weekend.
World Bank chief Robert Zoellick praised the European Central Bank for increasing liquidity for eurozone banks to enable them to buy more sovereign debt, but warned that this could only be a stop-gap measure.
“I’m glad the ECB took action. But this buys time, you still have to act,” he said, as the world waits to see if Monday’s summit will produce agreement on a new “fiscal compact” setting in stone the bloc’s deficit-cutting strategy.
“No-one is immune in the current situation. It’s not just a eurozone crisis it’s a crisis that could have collateral, spillover effects in the rest of the world,” IMF director Christine Lagarde warned delegates.
“Now is the time. There has been a lot of pressure building in order to see a solution come about,” she said, urging International Monetary Fund members to give her the 500 billion dollars she needs to stock as a bail-out fund.
“And it’s for that reason that I’m here, with my little bag, to collect a bit of money,” she said, to laughter and applause.
Osborne, a eurosceptic who is glad that Britain stayed out of the euro, nevertheless said he hoped that Europe would overcome its woes.
But, in an implicit rebuke for a reluctant Germany, he said this would have to mean “permanent fiscal transfers” between stronger and weaker member states.
“That’s what is required to make a single currency work,” he said, arguing that Europe will either have to make the ECB its lender of last resort, pool its debt through joint eurobonds or through direct budget transfers.
Demonstrators, including three topless Ukrainian feminists, made a feisty bid to get Davos’ attention and demand more focus on the plight of the worst off, but deep snow and a tight security presence limited their numbers.
The Davos forum ends on Sunday, at which point the financial world’s eyes will switch to Brussels and Monday’s much anticipated EU summit.
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