Europe's leaders push for speedy fund changes as Italy cuts deficit
Europe's leaders, including German chancellor Angela Merkel, are pushing for a rapid implementation of the recent deal to boost the European rescue fund before the debt crisis gets even worse.
Meanwhile, Italy has promised to cut its deficit earlier than planned in a bid to boost market confidence in its economy.
Italy will speed up its austerity measures and will seek a balanced budget in 2013, a year earlier than planned, Prime Minister Silvio Berlusconi said in a Rome press conference.
A spokesperson for Mrs Merkel said she had been in contact with various European leaders and had emphasised the need to speed up implementation of the agreement reached on July 21. Mrs Merkel was due to talk to US President Barack Obama late last night. She is holidaying in south Tyrol, Italy.
Eurozone leaders spent yesterday scrambling to throw water on the raging debt fire as markets continued to freefall.
EU economics chief Olli Rehn, who had been holidaying in Finland, rushed back to Brussels as spiralling Italian and Spanish borrowing costs and a market sell-off threatened to rout the bloc's fragile recovery.
His return came just two weeks after eurozone leaders inked a "milestone" deal to ringfence the debt crisis with a second Greek bailout and new powers for the bloc's €440bn rescue fund, but it has so far failed to restore confidence in the zone's firefighting ability.
Mr Rehn put the jitters down to the global economic slowdown and miscommunication of the July eurozone deal, saying investors had not given officials enough time to put it into action.
He said that it was "unrealistic" to expect the new-style fund to be up and running immediately, but that officials were working night and day to draw up legislation that would have to be then ratified by the eurozone's 17 member countries, which he said could be done by "early September".
"Markets have not reacted as we expected or hoped for," Mr Rehn said yesterday. "We have had difficulties in communicating the agreement to the markets and to the citizens."
The fund's new powers include buying bonds on secondary markets, offering pre-emptive credit lines to ailing states and earmarking loans for bank recapitalisations.
It would allow the fund, officially called the European Financial Stability Facility (EFSF), to take over crisis-fighting from the European Central Bank, which this week revived its dormant sovereign bond buying programme in the light of market tensions.
The ECB has long been in favour of getting ailing countries' debt off its books after purchasing €74 billion of mostly Greek, Irish and Portuguese government bonds since it began the emergency programme last May.
On Thursday, ECB head Jean-Claude Trichet hinted that the bank would resume buying bonds, but reports from traders indicate it is concentrating on Irish and Portuguese debt and has not yet touched Italy or Spain.
Rome and Madrid have announced massive austerity programmes and economic reforms to convince investors they are creditworthy, but yields on their 10-year bonds are hovering above 6pc, twice the rate charged for their German equivalents and generally considered unaffordable given their low growth prospects.
"The market unrest witnessed in the last few days is simply not justified on the grounds of economic fundamentals -- it is not justified for Italy, it is not justified for Spain," Mr Rehn said.
As markets continued to flounder yesterday, Spanish premier José Luís Rodríguez Zapatero made a round of telephone calls, speaking with French president Nicolas Sarkozy and Commission chief José Manuel Barroso to "follow developments in the global financial crisis and the debt markets", the Spanish government said in a statement.
Separately, Mr Sarkozy was due to hold talks with Mrs Merkel, where they were expected to discuss "the situation in the eurozone", a German government spokesman confirmed.
A commission spokeswoman said that Mr Barroso was in "regular contact" with various leaders while vacationing in Portugal.
Mr Rehn's intervention follows a day after Mr Barroso mooted an increase in the EFSF's lending ceiling to dampen scepticism about its ability to shore up Italy and Spain, the eurozone's third and fourth-largest economies.