George Osborne: Eurozone crisis threatens all Europe

UK Chancellor George Osborne has said the eurozone debt crisis is a "real danger" to all of Europe as he arrived for a summit in Brussels.

All of Europe's finance ministers are meeting to try to find a solution to the bloc's ongoing economic problems.
The eurozone has already approved the next tranche of Greek bailout loans, potentially saving the country from a disastrous default.

But the French and German governments are divided over a lasting solution.
The finance ministers from all 27 European Union states are meeting for the talks. Heads of government will then gather on Sunday, and have announced plans for an extra meeting on Wednesday.

"We've had enough of short-term measures, sticking plaster that just gets us through the next few weeks," Mr Osborne said.
"The crisis of the eurozone is a real danger to all of Europe's economies, including Britain."
BBC business editor Robert Peston said that new forecasts from the bailout lenders - the so-called "troika" - showed that the current plan to revive the Greek economy had failed.

"The unavoidable implication is that the IMF will not provide any more bailout finance for Greece unless there are much bigger write-offs of Greek government debt by private sectors lenders," he said.
On Friday, the 17 nations that use the euro approved the next tranche of bailout loans to Greece - an 8bn-euro ($11bn; £7bn) loan that must still be signed off by the International Monetary Fund and that Athens should get in mid-November, officials said.

Debt-addled Greece has been bailed out - twice - along with the Irish Republic and Portugal. The eurozone is working on a third package for Greece now, as well as a solution that could help the huge-but-faltering economies of Spain and Italy.

But there have been widespread reports of deep divisions between France and Germany.

Greece 'not problem'

The German government has promised its taxpayers that its contribution will not go above 211bn euros so is looking for a way to increase the size of the fund without increasing the liabilities of German taxpayers.

In particular, France and Germany need to agree on how to increase the firepower of the eurozone's bailout fund, the European Financial Stability Facility (EFSF), from its current 440bn euros.

France has proposed turning the EFSF into a bank so that it could borrow from the European Central Bank (ECB), but Germany has refused to sanction such a move, arguing it would compromise the ECB's impartiality.

But that idea "is no longer an option," according to the Dutch Finance Minister, Jan Kees De Jager.
It is not clear how the eurozone would expand the fund now - which observers say needs to be closer in size to 2tn euros.

De Jager said two options remain for "leveraging" the rescue fund, but neither would involve the ECB. He did not say what those options are.
Previous disagreements between France and Germany about the bailout plans have centred on how much the private sector would have to contribute to any package.

Germany has been leading the push for the private sector to take steeper losses, but France and the ECB fear that this would destabilise the banking sector and worsen market turmoil.
French and German banks hold much of external Greek debt, as do Greek banks - meaning they would need to be recapitalised.

"Greece is not a central problem for the eurozone," insisted Evangelos Venizelos, finance minister of Greece - which has been racked by strikes and numerous difficult parlaimentary votes on austerity measures.
"The point now is to adopt a general more constructive decision for the eurozone as a whole."

Negotiations have not yet begun properly with private sector lenders to Greece on a further reduction of what the Greek government will repay them.

Banks have already agreed to take a 21% loss, or "haircut", on their loans to Greece but there is growing pressure for them to accept higher losses. One diplomat told AFP that the eurozone wants banks to at accept an "at least 50%" loss on their Greek debt.

Jean-Claude Juncker, the chairman of the eurogroup and the prime minister of Luxembourg, said on Saturday that banks must share "a substantial increase" in Greece's debt burden.
And Sweden's Anders Borg said that banks should not expect "freebies" from taxpayers.
The European Banking Authority has estimated that between 80bn and 100bn euros is needed to boost the capital reserves of banks.

A deal on the euro had been expected to be signed on Sunday, but France and Germany said they would not be able to reach an agreement by then and announced that leaders would meet again on Wednesday.
Sunday's summit had already been delayed from 17-18 October because more time was needed to finalise a plan.



Source: www.bbc.co.uk

Euro crisis weighing on east European growth

A major development bank sharply reduced its growth forecast for Eastern Europe on Tuesday and warned of risks to the region’s banks, another example of how the sovereign debt crisis is radiating outside the euro zone.

The European Bank for Reconstruction and Development, which lends to businesses and governments in the former Soviet bloc and is underwritten by Europe and the United States, cut its growth estimate for Central Europe and the Baltics to 1.7 percent for 2012.

Merkel Says EU Summit Will Be Important, Not Final, Crisis Step

Oct. 18 (Bloomberg) -- German Chancellor Angela Merkel said that a European Union summit in five days will mark an “important step,” though not the final one in solving the euro-area sovereign debt crisis.

“These sovereign debts have built up over decades, so they won’t be ended with one summit,” Merkel told reporters in Berlin late today. While European officials recognize their responsibility to stop the crisis, “this will require tough, long-term work.”

UK CPI inflation rate rises to 5.2% in September

The rate of Consumer Prices Index (CPI) inflation in the UK matched its record high in September, rising to 5.2% from 4.5% the month before.

An increase in energy costs was behind a large proportion of the rise.

The 5.2% rate is the highest CPI measure since September 2008, and it has never been higher since the CPI measure was introduced in 1997.

European Stocks Fall on Debt Crisis, China

European stocks fell as concern that France may lose its top credit rating added pressure on the region’s leaders to find a solution to the debt crisis and as China’s economy grew at the slowest pace in two years. Asian shares dropped and U.S. index futures fluctuated.

BHP Billiton Ltd. (BHP) and Rio Tinto Group led mining shares lower as metals dropped. BNP Paribas (BNP) SA and Societe Generale (GLE) SA sank more than 6 percent as Moody’s Investors Service said France’s Aaa rating is under pressure. Dexia SA (DEXB) tumbled 13 percent as the European Commission opened an in-depth probe into Belgium’s takeover of its local consumer-lending unit.