Europe divided on Friday in a historic divide on a closer fiscal Union, the euro, with an overwhelming majority of the countries under the leadership of Germany and France approval to go ahead with a separate contract, so that the EU isolated to maintain the third largest economy of Great Britain.
By John W. Schoen, senior producerTo prevent Europe's high-profile consultation Friday spending hard to break, stack larger pile of debt can euro zone countries. It will do little to ease growing financial pressure on the European banking system from the binge of bonds, has pushed to the edge of the standard Greece, Italy and Spain.
The European financial crisis has undermined already business confidence of consumers and deposit of euro zone into a slight recession. How the American economy has strengthened in recent months, has the risk, that Europe relieved could recession the United States again in a downturn 'double dip' send. But a meltdown could constitute a serious threat to the prospects for global growth one or more of the big banks in Europe.
Under the deal in Brussels agreed on the 17 countries with a common currency introduced national spending cap would bound to introduce legislation, their deficits. Countries that exceed this limit would be taken with automatic sanctions, unless it lifted it, a majority of the members. The intergovernmental Pact, the voters approved by referendums is required, is to be ratified by mid March.
The business can investors confidence, that Europe's free spending ways of are. It offers very little head from the risk that one or more Governments default on their debt.
"This is a great leap sideways," said Daniel Gros, Director of the Centre for European policy studies think tank in Brussels. "We have a framework that could restore a certain tax order at the euro area over 10 years now." The German view is that all of this that is required is Spanish and Italian markets, debt to buy to convince. I have my doubts that it will be enough. "I think the tension further."
Earlier this week, expressed credit rating agency standard & poor's also doubt whether European Heads of State and Government could come with a convincing answer to the current crisis, warning that it may be 15 euro zone countries downgrade, including Germany and France, along with a number of large European banks. S & P said Friday it was the plan review and Woiuld a decision applies to all reviews changes int he next few days.
There were high hopes that plan the eighth sponge this year, the latest, more immediate action would to be attached to banks in Europe heavily invested backstop in shaky Government bonds. But the Summit offered little to reassure investors in this respect.
"Germany should feel pretty good about the fact that it the promise of long-term budgetary discipline," said David joy, chief market strategist for Ameriprise financial. "But, that still brings us back to: who is the lender of last resort, until we, get there in the next 18 months, 24 months." Will the (European Central Bank) strengthen? We find out during the first quarter (European governments) come to the markets with a substantial amount of debt to roles. "
Italy and Spain have the biggest debt pile in need of refinancing early next year; Italy has to sell fresh debts on loans over EUR 150 billion between February and April. Refinancing has become more expensive as investors have called for higher interest rates reduce the risk of default. , Add Italy's deficit, in turn forcing higher borrowing costs, to make more, to borrow the deficit.
Europe's central banks still shy on the idea of a more comprehensive response, the large purchases of non-performing Government bonds similar to moves reserve such as the market soothing of the Federal developed as the U.S. banking system in early 2008 until would include. Friday news agency governing is sources Reuters that it purchases to EUR 20 billion limited his per bond.
Early in the week, Europe's central bankers announced a series of measures to try to calm the financial markets and the head from a looming credit crunch. The ECB cut its key interest rate by a quarter's point record low 1 percent. It simplifies the rules on can the quality of assets to secure loans to banks, lowered the reserves banks must hold and increased the term of the Central Bank loans to 3 years by one.
The trains may have helped the deterioration of the European banking system, now to stabilize. But they are not far enough to fix the problem, David Malpass, President of the economic research and consulting company encima global LLC and former officials, the Treasury Department to.
The UK is cut an isolated figure in Europe today after the Prime Minister David Cameron in the European Union to deal with the euro-zone crisis effectively a treaty veto. ITV political correspondent Chris ship reports.
"That are of a bandaid as a correction of the underlying fundamentals," he said. "The problem is that banks can't afford, can further depreciation of government bonds, but there is no plan by Germany to stop the infection of Greece in Spain and Italy."
European regulators, said in the meantime, this week, banks of the eurozone must lift 115 billion euros in fresh capital, the more strain on their ability to lend to businesses and consumers.
Friday of the Summit also left unresolved the fate of a combination of backup funds, if you help in could or other standard Governments. Germany has violated this bailout funds that mechanism (ESM), expand European financial stability facility (EFSF) and the European stability. German Chancellor Angela Merkel blocked a proposal to the ESM allow a banking license to borrow money from the European Central Bank.
Brussels Summit also agreed to help the International Monetary Fund, less than EUR 200 billion, Italy and Spain to lend works through the funding crunch, with those who confronted you early next year. But, that is also as a short-term solution. These funds are not nearly enough, to a full-blown standard reverse running stop; Alone in Italy, almost EUR 2 billion in total debt has outstanding.
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