Europe

Europe

ECB chief, Geithner fuel hopes of taming eurozone crisis

28 January 2012 02:48 (UTC +04:00)

Baku-APA. European Central Bank president Mario Draghi said Friday the eurozone had made "outstanding" progress towards resolving its debt crisis as hopes grew for an imminent deal on Greece’s debt burden, APA repors quoting AFP.

US Treasury Secretary Timothy Geithner also praised Europe’s efforts to turn the corner, saying recent moves had bolstered the single currency’s credibility.

Speaking at the Davos forum, Draghi said many of the fundamentals which sparked the financial crisis four years ago had now been addressed although he urged governments to act faster to put their battleplans into action.

"The amount of progress is outstanding," said Draghi. "If you compare today with even five months ago, the eurozone area is another world."

Draghi said that the fiscal compact most European states are negotiating is crucial to efforts to resolve the crisis, praising governments’ willingness to give up sovereignty. The compact will be discussed at an EU summit on Monday.

Draghi said a lack of regulation was one of the main causes of the crisis, as well as underlying flaws in the banking sector.

"The time that has elapsed since then has seen an extraordinary development in the regulatory policy design. Much has been discussed and put on paper," he said, adding that there had been "relatively less policy implementation".

Draghi’s optimistic assessment came after EU economic affairs commissioner Olli Rehn said the Greek debt agreement may be hammered out before Monday’s summit.

"We’re very close," he told Davos. "They’re about to close a deal, if not today maybe over the weekend, preferably in January rather than February."

The Greek government is locked in talks with private creditors on a voluntary exchange of bonds that would wipe 100 billion euros ($130 billion) off the country’s debt of 350 billion euros.

International Monetary Fund chief Christine Lagarde said Greece’s creditors until now had not made an offer good enough for Athens to sign.

"My understanding is that negotiations are under way, and clearly up until now it was not appropriate for the Greeks to accept the creditors’ offer," she told Bloomberg television in Davos.

"So I’m pleased to see that they’re back to the drawing board, and negotiating, and working hard on doing something that is significant and substantial."

The deal under discussion in Athens would see private creditors take a "haircut" of at least 50 percent on 200 billion euros in debt. Previous talks stalled over the amount of interest to be paid on the remaining debt.

Any failure to strike a deal could trigger a messy default, which would be an economic disaster for Greece itself and a threat to banks holding too much sovereign debt while piling pressure on other eurozone states.

Speaking at the same debate as Rehn, German Finance Minister Wolfgang Schaeuble said he expected Greece to avoid a default but he warned its debt level should not exceed 120 percent of GDP.

European Commission chief Jose Manuel Barroso said Athens needed help from its partners, arguing a default would signal a "major problem" for the whole eurozone. "If our Greek friends do their bit, we must support them," he said.

Speaking the day after the Federal Reserve cited the eurozone crisis as a reason for trimming its growth forecast, US Treasury Secretary Timothy Geithner said there were signs the worst of the crisis was over.

"Europe is making some progress," he told delegates, saying that over the past two months they had laid the foundations for a "more credible framework".

"We have three new governments (Italy, Greece, Spain) doing some very tough things, an ECB doing the things you have got to do."

The annual forum has been marked by gloom about the state of the global economy, and in particular about Europe’s struggle to cope with yawning public deficits while at the same time seeking growth and jobs.

The eurozone’s woes were again underlined when rating agency Fitch cut its ratings of five of its members including Italy and Spain, citing their poor finances and vulnerability to sharp turns in market sentiment.

Geithner said Europe needs a "stronger and more credible firewall" and hinted the US and emerging economies could supply the International Monetary Fund with more funds to help the rescue effort.

"If Europe is able to do that, we believe that the IMF can play a substantive role. It can’t be a substitute for a European response," he said.

And despite the whiff of optimism, stocks in Europe and the United States slipped back as new figures showed that US economic growth rose to only 2.8 percent in the fourth quarter, lower than predicted.

London’s FTSE 100 index of top shares fell 1.07 percent and Frankfurt’s DAX 30 index was off by 0.43 percent by the close of trade. Wall Street opened down, with the Dow Jones Industrial Average falling 0.53 percent in afternoon trading.