U.S. Steps Up Pressure on Europe to Resolve Euro Crisis
"Political News" "State Department" "Syria "05/31/2012
By DAVID JOLLY
The New York Times
Published: May 31, 2012
PARIS — President Obama is putting increasing pressure on European officials to resolve the euro crisis, talking with the leaders of Germany, France and Italy to help lay the groundwork for action before a Group of 20 summit to be held in June in Mexico.
Mr. Obama discussed the recent developments in Europe in video conference calls with the European leaders on Wednesday, Bloomberg News reported. Mr. Obama was following up on discussions he held at the recent Group of 8 meeting at Camp David with the German chancellor, Angela Merkel, the French president, François Hollande and Mario Monti, the Italian prime minister.
“Leaders agreed to continue to consult closely as they prepare to meet at the G-20 summit in Mexico next month,” the White House said in a statement. The meeting will be held June 17-18, beginning just a day after a Greek election that is being seen as a de facto referendum on that country’s euro membership.
The White House has also dispatched Lael Brainard, a Treasury undersecretary, to Europe this week for talks with officials in Greece, Germany, Spain and France.
In Ireland, voters were going to the polls Thursday for a referendum on the European Union fiscal treaty for fostering budgetary discipline and growth. While polls have shown a small majority favoring the treaty, the Irish are already resentful of painful austerity measures, and success is not certain. A failure to back the agreement could mean Ireland will be unable to draw on European Union financing after 2013 if it needs another bailout and could further encourage anti-euro sentiment in Europe. Final results will be known only on Friday.
The main concern on investors’ radar remains Spain, which is searching for a way to recapitalize its struggling financial sector. The government had to nationalize Bankia, a foundering mortgage lender, in May, and the bank said Friday that it would need 19 billion euros, or almost $24 billion, in new rescue funds. The austerity-strapped government with little in its arsenal to help other troubled lenders, and borrowing in the market has become prohibitively expensive, at around 6.5 percent for 10-year debt.
“Spain is ‘too big to fail’ as far as the euro is concerned,” Charles Diebel, head of market strategy at Lloyds Banking in London, wrote in a research note. “And the funding issues and lack of viable bank resolution are causing an investor flight as seen before, but the numbers and magnitude are on a different level from anything seen thus far. We could be fast approaching a situation where the sanguine outlook maintained by some politicians in core countries cannot be sustained.
Inflation data raised the likelihood that the European Central Bank would cut its benchmark interest rate from the current 1.0 percent when the governing council meets in June. Euro zone prices rose 2.4 percent in May from 2.6 percent in April, Eurostat, the E.U. statistical agency reported.
While May inflation was above the E.C.B.’s target of just under 2 percent, the declining rate of increase and recent data showing slower lending might give the bank scope to cut rates. Still, the recent decline in the euro raises the prices of imports like petroleum, that are priced in dollars, and may give the central bank pause.
The E.C.B. president, Mario Draghi, said Thursday that the central bank had restored credit lines to Greece’s four largest banks after they received fresh capital from the European Union, news that could help to reassure Greek depositors.
Markets recovered somewhat after a drubbing Wednesday. In afternoon trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 0.8 percent, while the FTSE 100 index in London gained 0.9 percent.
U.S. equity index futures rose modestly, suggesting a positive start at the opening on Wall Street. The Standard & Poor’s 500 index fell 1.4 percent on Wednesday.
With the majority of equity trading now generated by the computer programs of big banks and investment funds, analysts caution against reading too much into daily stock moves as a reflection of market sentiment.
The dollar, which has been rising against most other major currencies as investors sought safe haven, fell Thursday. The euro rose to $1.2403 from $1.2367 late Wednesday in New York, while the British pound rose to $1.5512 from $1.5478. The dollar fell to 78.80 yen from 79.07 yen, and to 0.9684 Swiss francs from 0.9710 francs.
Asian shares fell. The Tokyo benchmark Nikkei 225 stock average declined 1.1 percent. The Sydney market index S.&P./ASX 200 fell 0.4 percent. In Hong Kong, the Hang Seng index declined 0.3 percent.
Europe’s sovereign bond market also calmed. The yield on the Spanish 10-year bond, an prime indicator of the government’s financing costs, slipped back to 6.49 percent, down 12 basis points.