eurozone tensions mount as summit respite fades
Last Updated : GMT 06:41:18
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Eurozone tensions mount as summit respite fades

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Arab Today, arab today Eurozone tensions mount as summit respite fades

Paris - AFP

Crisis clouds darkened over the debt-ridden eurozone on Monday after last week\'s EU summit deal afforded only a brief respite from the markets and leaders warned of a two-speed Europe. Ratings agency Moody\'s was first to turn the screw. It declared the crisis talks had failed to produce \"decisive policy measures\" and threatened to review the credit ratings of all EU states within the next three months. Meanwhile, Italy edged through a bond test, but still had to pay an exceptionally high rate to borrow fresh money for only 12 months. Traders were watching nervously as Italy\'s commitment to austerity measures was tested by a nationwide strike, and EU and IMF auditors began talks in Greece on the implementation of its debt bailout.   Asian markets had nudged upwards on hopes that the deal would draw a line under the crisis but Europe opened down as concerns returned. Shortly after lunch London\'s FTSE 100 index was down 0.46 percent, Frankfurt\'s DAX 30 lost 1.46 percent and in Paris the CAC 40 shed 1.05 percent. European leaders had hoped that Friday\'s agreement to move towards a fiscal pact, seeking to eradicate their public deficits under close EU supervision, would reassure markets nervous about their massive debts being repaid. But on Monday they were also forced to admit that Britain\'s decision to stay out of the deal meant there was now a split, two-speed Europe.  France\'s President Nicolas Sarkozy said he and German Chancellor Angela Merkel had \"tried everything\" to convince Prime Minister David Cameron to sign the pact at least week\'s EU summit. \"But there are now clearly two Europes,\" Sarkozy told Le Monde. \"One wants more solidarity between its members and more regulation. The other is attached only to the logic of the single market.\" But, asked whether Britain, which has refused to join the single currency and opposed last week\'s fiscal pact, could still remain inside the EU single market, Sarkozy said: \"We need Great Britain. \"We\'d be greatly impoverished if we allowed its departure which, luckily, is not on the agenda,\" he insisted.  EU Economic Affairs Commissioner Olli Rehn was more critical, warning London its veto would not protect the City of London from new financial regulation -- the headline reason given.  \"I regret very much that the UK was not willing to join the fiscal compact. I regret it not only for the sake of Europe but for the sake of British citizens,\" Rehn said. Moody\'s, the first credit agency to pronounce on the deal, complained of an \"absence of decisive policy measures\" and warned it would join Standard & Poor\'s in reviewing EU sovereign debt ratings. \"The absence of measures to stabilise credit markets over the short term means that the euro area, and the wider EU, remain prone to further shocks and the cohesion of the euro area under continued threat,\" Moody\'s said.  Many market analysts were also scathing about the measures but said traders might not be in a hurry to write off the plan immediately. \"If the agencies downgrade euroland sovereign risk ... that would mean more pain for government bonds and, in turn, more losses for the banks that would have to mark down the value of their bond holdings,\" Moneycorp said.  The first big test of market confidence came as Italy issued seven billion euros ($9.3 billion) in 12-month bonds to fund its debt while Prime Minister Mario Monti pursues a harsh austerity programme. Rome hit its target but will have to pay 5.952 percent interest, lower than the rate for the last similar sale, but still dangerously high. If buyers had insisted on higher interest rates on the debt it could threaten the government\'s deficit reduction plan. The bond issue came amid nationwide strike action against the cuts and after Monti\'s newly installed technocratic government warned of \"an extreme financial and economic emergency.\" The main Italian unions called three-hour work stoppages in their first coordinated strike action in six years and more protests against proposed property tax increases and pension reforms are planned. Meanwhile, Greece held tense talks with its international creditors and debt holders on the application of a new eurozone bailout designed to ease the country\'s huge debt burden. Greek Finance Minister Evangelos Venizelos met auditors from the European Commission, the European Central Bank and the International Monetary Fund. \"There will be negotiations on the new programme,\" a finance ministry source said, referring to the eurozone lifeline thrown to Athens in late October which includes a 50-percent write-down on private banks\' holdings of Greek government bonds. Athens was forced to seek an EU-IMF bailout last year after markets turned on it because it had provided inaccurate deficit data and built an unsustainable debt mountain of more than 350 billion euros.

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