VIENNA – The eurozone debt crisis has grown to threaten banks and the wider economy, European Central Bank president Jean-Claude Trichet warned Tuesday, as Greece awaited approval of bailout loans it needs to avoid bankruptcy.
Ads by Google
Online Banking
Ally Bank®. Learn About Our Online
Savings Account. Member FDIC.
http://www.ally.comIs Your Bank In Trouble?
Free list Of Banks Doomed To Fail.
The Banks and Brokers X List. Free!
http://www.MoneyAndMarkets.comInflation Is Coming
The World's Financial System Is
Crumbling. Here's The Worst-Case.
http://www.ifii.com/HyperinflationGreece's international debt inspectors completed their review of the government's reforms, saying Tuesday that if their conclusions are adopted by the eurozone and International Monetary Fund, Athens is likely to receive the next batch of its bailout loans in early November.
But those loans aren't averting a larger crisis.
The inspectors said Greece's deficit targets for 2011 were "no longer within reach," and while new austerity measures for 2012 are adequate, more is needed for 2013-14.
The report by the officials from the International Monetary Fund, European Commission and European Central Bank, collectively known as the troika, potentially averts a bankruptcy looming over Greece.
In the euro zone
Countries that use the euro currency: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain
But their call for new measures reinforces the view that Europe's strategy in getting Athens out of its debt hole is not working as hoped and that an alternative approach is needed.
Speaking as head of the eurozone's new risk-watchdog, the European Systemic Risk Board (ESRB), Trichet earlier told a European parliament Committee in Brussels that market fear about government debt has spread to capital markets around the world and is drying up bank funding.
"The banking sector in Europe needs recapitalization, that is part of our message," Trichet said.
Now "it is a matter of urgency" that governments move "decisively to tackle" the crisis, he said. "The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion."
Trichet's warning came as Jean-Claude Juncker, prime minister of Luxembourg and head of eurozone finance minister meetings, said Greece's bondholders would have to take sharp writedowns.
He was quoted late Monday by Austrian state broadcaster ORF as saying that eurozone countries are "talking about more" than a 50% to 60% haircut for holders of Greek debt, though his spokesman later corrected his statement to say he meant more than 21%.
Experts and investors believe Greece's debt situation is untenable, even with more reforms and austerity measures, and will need to write off some of the money it owes bondholders.
Greece's second bailout, which was agreed in July but has yet to be finalized, proposed a 21% cut in debt repayments to bondholders. Economists, however, say a 50% reduction would be necessary.
In the near term, Greece depends on regular installments of bailout loans, but whether it gets the next euro8 billion ($10.9 billion) will depend on a review of its reforms by international debt inspectors that wrapped up Tuesday.
The International Monetary Fund, European Central Bank and European Commission are checking whether Greece has done enough to qualify for the next batch of its vital international bailout loans. Without them, the country will run out of money to pay pensions and salaries by mid-Novemeber and could be unable to repay bondholders in December.
As the debt inspectors concluded their talks, protests caused more disruption in the capital.
Workers at a key refinery went on strike, sending motorists who feared a fuel shortage to form huge lines at gas stations to fill up. A strike by municipal workers has left garbage piling up in in mounds on city streets for days. Protesters have also staged sit-ins of state buildings, including those of the water company.
Greece has been locked out of the international bond market for more than a year due to the high interest rates demanded for its bonds, but regularly issues short-term treasury bills.
The country raised euro1.3 billion ($1.8 billion) Tuesday in the auction of 26-week treasury bills at an interest rate of 4.86%, marginally higher than the 4.8% yield in a similar sale Sept. 6, the debt management agency said.
Demand was also slightly lower, with Tuesday's sale 2.73 times oversubscribed compared with 3.02 times in September. The country had initially been seeking to raise euro1 billion.
———
Becatoros contributed from Athens. Juergen Baetz in Berlin and Gabriele Steinhauser in Brussels also contributed to this report.
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Logged
