Two weeks before a new summit, European leaders are under pressure to deliver a credible solution to the debt crisis after Standard & Poor’s (S&P) punished their policies with stinging credit downgrades.
Eurozone governments face an uphill battle as they scramble to avoid a messy debt default in Greece, boost a bailout fund considered too small to save bigger countries and seal a fiscal pact aimed at tightening budget discipline.
After a relatively calm start to the year, the crisis returned with a vengeance on Friday as negotiations between Greece and bank creditors on a huge debt writedown hit a snag and S&P’s downgraded nine eurozone nations.
Photo: AFP
The credit ratings agency justified its action by saying that EU policies in recent weeks “may be insufficient to fully address ongoing systemic stresses in the eurozone.”
More than two years into the crisis, the bailouts of Greece, Portugal and Ireland, the creation of an emergency fund and a slew of continent-wide austerity measures have once again failed to calm fears of a eurozone breakup.
“This is more a downgrade of the eurozone’s management of the crisis,” said Sony Kapoor, head of the Re-Define economic think tank. “Standard and Poor’s had given EU leaders fair warning, but they have wasted the month they have had to change course and come up with a credible crisis resolution strategy.”
European leaders, with the exception of Britain, agreed last month to seal a “new fiscal compact” by March to tighten budget discipline and deepen integration to convince markets that there will be no repeat of the crisis.
However, Standard and Poor’s, in addition to kicking France and Austria out of the exclusive club of “AAA” rated nations, warned that “a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating.”
EU leaders plan to discuss how to spur growth and jobs at their Jan. 30 summit, but the new fiscal treaty will also figure high on the agenda.
After years of toothless fiscal oversight in the EU, the pact would require governments to enshrine balanced budgets in their constitutions and threaten more automatic sanctions against countries that run excessive deficits.
German Chancellor Angela Merkel, who has championed stricter budget rules, said on Saturday that the downgrade means Europe must quickly implement the new treaty “and not try again to soften it.”
“The [Standard and Poor’s] decision confirms my conviction that we in Europe still have a long road ahead of us until investor confidence is again restored,” Merkel said.
The S&P downgrades meant that a fiscal pact agreed at an EU summit last month to tighten economic integration must be implemented quickly, Merkel said.
“We are now called upon to implement quickly the fiscal pact, to implement it with determination ... and not try again to soften it,” she said.
Europe’s new permanent bailout fund must be effective as soon as possible, she added.
The ratings agency’s move has also fueled doubts about the eurozone’s ability to boost its bailout fund, the European Financial Stability Facility (EFSF).
Originally endowed with guarantees totaling 440 billion euros (US$558 billion), the EFSF only has 250 billion euros left after bailing out Portugal and Ireland — insufficient for Italy or Spain if the eurozone’s third and fourth-biggest economies need help.
EU leaders agreed last year to leverage the fund to 1 trillion euros, but they have failed to attract much interest among private investors and foreign governments.
Friday’s downgrades could hurt the EFSF.
S&P warned last month that any downgrade of one of the six “AAA” nations could affect the EFSF’s own top rating.
When an apartment comes up for rent in Germany’s big cities, hundreds of prospective tenants often queue down the street to view it, but the acute shortage of affordable housing is getting scant attention ahead of today’s snap general election. “Housing is one of the main problems for people, but nobody talks about it, nobody takes it seriously,” said Andreas Ibel, president of Build Europe, an association representing housing developers. Migration and the sluggish economy top the list of voters’ concerns, but analysts say housing policy fails to break through as returns on investment take time to register, making the
EARLY TALKS: Measures under consideration include convincing allies to match US curbs, further restricting exports of AI chips or GPUs, and blocking Chinese investments US President Donald Trump’s administration is sketching out tougher versions of US semiconductor curbs and pressuring key allies to escalate their restrictions on China’s chip industry, an early indication the new US president plans to expand efforts that began under former US president Joe Biden to limit Beijing’s technological prowess. Trump officials recently met with their Japanese and Dutch counterparts about restricting Tokyo Electron Ltd and ASML Holding NV engineers from maintaining semiconductor gear in China, people familiar with the matter said. The aim, which was also a priority for Biden, is to see key allies match China curbs the US
The popular Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) arbitrage trade might soon see a change in dynamics that could affect the trading of the US listing versus the local one. And for anyone who wants to monetize the elevated premium, Goldman Sachs Group Inc highlights potential trades. A note from the bank’s sales desk published on Friday said that demand for TSMC’s Taipei-traded stock could rise as Taiwan’s regulator is considering an amendment to local exchange-traded funds’ (ETFs) ownership. The changes, which could come in the first half of this year, could push up the current 30 percent single-stock weight limit
NOT TO WORRY: Some people are concerned funds might continue moving out of the country, but the central bank said financial account outflows are not unusual in Taiwan Taiwan’s outbound investments hit a new high last year due to investments made by contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and other major manufacturers to boost global expansion, the central bank said on Thursday. The net increase in outbound investments last year reached a record US$21.05 billion, while the net increase in outbound investments by Taiwanese residents reached a record US$31.98 billion, central bank data showed. Chen Fei-wen (陳斐紋), deputy director of the central bank’s Department of Economic Research, said the increase was largely due to TSMC’s efforts to expand production in the US and Japan. Investments by Vanguard International
RSS