Political and business leaders were struggling to hold the line on Wednesday night on their plans to resolve the European debt crisis in the face of growing speculation that confusion over the Greek bail-out could trigger contagion across the continent.
IMF managing director Christine Lagarde said she was completely convinced by the “resilience and determination” of European countries to implement the agreement reached in the early hours of 27 October to take actions for solving the eurozone crisis.
“I have never seen so much determination to act in a coordinated fashion,” Lagarde said at a banquet hosted by the B20 group of business leaders in Cannes.
Speaking at the same banquet, South Korean president Lee Myung-bak, said of the wider Action Plan drawn up by the G20 for relaunching global growth that he was confident G20 leaders would “produce a definite plan” when they meet today.
Lagarde, French president Nicolas Sarkozy and German Chancellor Angela Merkel were last night locked in talks with George Papandreou after the Greek prime minister’s dramatic announcement that he would hold a referendum on the rescue package.
The moves came as rumours swirled that European leaders had threatened to withhold the next €8 billion tranche in international aid to Greece in order to put pressure on Papandreou to reverse course. Meanwhile yield spreads on French and Italian 10 year government bonds hit euro era highs this week, suggesting that contagion fears had grown.
José Manuel Barroso, the president of the European Commission, insisted that Europe was “living up to his responsibility” to solve the European debt crisis and avert “dangerous spillovers” to the global economy.
“We are bringing Greek debt back to sustainable levels,” he writes in today’s Emerging Markets. “We are restoring confidence in the European banking sector. We are accelerating our agenda for growth and we are building a true economic union.”
Last week the 17 leaders of the eurozone countries agreed a deal with private sector lenders for banks to take a 50% haircut on their debts, Greece to make further economic reforms and the EU to provide a further E30 billion of funding.
However news of the referendum triggered a sharp fall in world markets as investors feared that if the vote were lost it would trigger a wave of contagion across Europe.
But Charles Dallara, managing director of the Institute of International Finance (IIF), which negotiated the deal on behalf of the banks, insisted that the debt reduction process would still go ahead and that the IIF had started “technical discussions”...
“We reaffirm our commitment to the agreement reached last week that would involve a voluntary 50% reduction in the value of nominal claims held by investors.”
He refused to be drawn on whether the referendum had upset the process. “It is not up to us sitting here to judge the process by which governments make these decisions,” he said.
He also said he saw no need to carry out similar deals with other weak eurozone nations. “We view Greece as a unique situation,” he said in a conference call from Washington, DC.
“We do not see the need, nor would we be willing to be involved in or engaged in, discussions of debt reductions in other countries.”
Dallara also was optimistic that Spain’s new government would be able to “build on the progress” that the current administration has made over the last year” after elections set for later this month.