Eurozone struggles to stem crisis

Officials working to leverage the region’s rescue fund as pressure mounts to staunch a sovereign debt crisis.

European central bank

Eurozone officials are working to magnify the firepower of the region’s rescue fund, European Central Bank policymakers have said, while US President Barack Obama piled on pressure for Europe to staunch a sovereign debt crisis that threatens the world economy.


Samah el-Shahat, our economic analyst, explains

After meeting at the IMF/World Bank and G20 meetings in Washington DC last week, European policymakers said on Monday they are working on ways to shore up the eurozone financial system and prevent the region’s government debt crisis from spreading.

However, their mixed messages on the size of a rescue fund and the role of the ECB underscored the difficulties for 17 eurozone nations in reaching consensus.

Obama, saying the crisis “is scaring the world,” urged eurozone leaders to act quickly to help a region where banks have not fully recovered from the 2008 financial crisis and which is now suffering from the Greek government’s debt crisis.

“They are trying to take responsible actions but those actions haven’t been quite as quick as they need to be,” Obama told a citizens’ meeting in Mountain View, California.

Implementing reforms

Stung by criticism for failing to stem the debt crisis, European policymakers have been working on new ways to stop the fallout from Greece’s near-bankruptcy from inflicting more damage on the world economy.

Analysts say a bailout fund of around $2.7 trillion would be needed if the crisis spreads to Italy and Spain, with the BBC reporting that the eurozone was debating an increase in the fund to that amount.

Europe came under more pressure on Sunday when a top International Monetary Fund official said the ECB was the only player big enough to “scare” financial markets, which have punished many eurozone members.

George Papandreou, the Greek prime minister, heads to Berlin on Tuesday, where he will meet with German Chancellor Angela Merkel ahead of a parliamentary vote there on approving plans to beef up the rescue fund.

German officials have downplayed prospects of any quick and dramatic change of course in the debt crisis, such as further increasing the size of the $595bn rescue fund, called the European Financial Stability Facility.

But Merkel also dismissed talk of allowing a controlled default of Greece, insisting instead on the step-by-step implementation of decisions already taken – but which investors are losing faith with.

Greek austerity plan

In July, when it became clear that Athens needed more help, eurozone leaders agreed on a second bailout, although several aspects of that deal still need to be finalised.

The government’s new measures include a new property tax to be paid through electricity bills to make it easier for the state to collect, as well as pension cuts and more tax hikes.

Lawmakers are to vote on Tuesday night on the property tax bill, which electricity company workers have threatened not to collect as they say the power utility should not be used as a tax collection system.

Greeks have been outraged by the new steps, as they come on top of previous austerity measures which failed to sufficiently reduce the country’s budget deficit.

Al Jazeera’s Nick Spicer, reporting from Berlin, said: “Greece is sticking to the plan and working with the IMF, EU and ECB and does not want to default”.

Debt inspectors from the IMF, European Commission and ECB, known collectively as the troika, are expected to return to Athens this week to resume a review suspended earlier this month amid talk of delayed implementation of reforms.

But no specific date has been set for their return, and the European Commission made clear on Monday that no decision on releasing the funds would be reached during a meeting of eurozone finance ministers in Luxembourg next Monday.

“This is going to be a tough week ahead for Greece,” said Al Jazeera’s Tim Friend, reporting from Athens. “They will have to show progress in order to get the next bit of money.”

Source: Al Jazeera, News Agencies