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G20 summit: US ‘encouraged’ by eurozone plans

US President Barack Obama has said he is encouraged by European leaders’ plans to tackle the eurozone crisis, as the G20 summit in Mexico ends.

In a final communique, world leaders said they would take “all necessary measures” to protect the euro area.

Leaders said they welcomed Spain’s plans to recapitalise its banks, according to the communique.

The talks were being held as Greece seeks to form a coalition government and Spain’s borrowing costs soared.

Speaking to reporters at the end of the summit, President Obama said that European leaders recognised that “bold and decisive” action was needed to address Europe’s debt crisis.

“Euro Area members of the G20 will take all necessary measures to safeguard the integrity and stability of the area”

“What I have heard from European leaders during these discussions, they understand the stakes, they understand why it’s important for them to take bold and decisive action, and I am confident they can meet those tests,” he said.

President Obama said that while there was no “silver bullet” to solve Europe’s crisis, “each step points to the fact that Europe is moving towards further integration rather than break-up”.

“I am confident that over the next several weeks, Europe will paint a picture of where we need to go,” he added.

‘Concrete steps’

As the summit came to a close the European leaders pledged to maintain stability in the eurozone and to work with the next Greek government towards reform and sustainability.

“Euro area members of the G20 will take all necessary measures to safeguard the integrity and stability of the area, improve the functioning of financial markets and break the feedback loop between sovereigns and banks,” the joint statement said.

“We support the intention to consider concrete steps towards a more integrated financial architecture,” it continued.

“The European Union members of the G20 are determined to move forward expeditiously on measures to support growth”.

But German Chancellor Angela Merkel stressed that Greece must hold up its end of the deal.

“It’s obvious that the reforms that were agreed in the past are the right steps and that they therefore must be implemented,” Mrs Merkel told reporters.

She added that world leaders had “very balanced” talks on growth.

“We need the right mix of budget consolidation… and at the same time efforts for growth.”

In the closing discussions of the summit, leaders also agreed not to introduce new protectionist measures until 2014.

But Russian President Vladimir Putin said that the imposition of trade barriers could be a vital tool in protecting Russian jobs.

Meanwhile, the “Brics” economies (Brazil, Russia, India, China and South Africa) also pledged to increase their contributions to the International Monetary Fund (IMF) – which has been seeking to boost its finances to prevent any future financial crisis.

The five Brics nations all offered to contribute $10bn (£6.4bn) to the IMF each in exchange for voting reforms that would give them greater influence in the organisation.

China also pledged $43bn (£27bn) to the IMF’s crisis intervention fund, which has almost doubled to $456bn (£366bn).

The BBC’s diplomatic correspondent Bridget Kendall, at the Los Cabos summit, says the offer of billions of dollars from the developing economies is perhaps the most tangible result of the two-day-long talks.

The funds, which would be released by the IMF if the eurozone crisis spreads, are a sign of support but also indicate how fragile many fear the economic situation in Europe to be, our correspondent adds.

G20: How their economies are faring

Country Growth (% GDP change, 2010-11) Unemployment (% 2011) External debt (% GDP, end of 2011)
Source: Principal Global Indicators
Argentina flagArgentina 8.9 7.5 7.6
Australia flagAustralia 2.2 5.1 86.6
Brazil flagBrazil 2.7 6 17.2
Canada flagCanada 2.4 7.5 70.2
China flagChina – mainland n/a 4.1 n/a
EU flagEuropean Union* 1.5 10.1** 120.0
French flagFrance 1.7 9.3 191.2
Germany flagGermany 3 6.5 159.4
India flagIndia 6.9 n/a 17.2***
Indonesia flagIndonesia 6.5 6.6 26.5
Italy flagItaly 0.4 8.4 115.1
Japan flagJapan -0.7 4.6 52
Mexico flagMexico 3.9 5.2 26.1
Russia flagRussia 4.3 6.6 27.7
Saudi Arabia flagSaudi Arabia 6.8 n/a n/a
South Africa flagSouth Africa 3.3 24.9 29.4
South Korea flagSouth Korea 3.6 3.4 34.9
Turkey flagTurkey 8.5 9.8 42.7
UK flagUK 0.9 8.1 421.9
US flagUS 1.7
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European Stocks Drop on Greek Impasse; Spanish Banks Fall

European stocks dropped for a second day, to the lowest level in almost four months, as investors awaited a resolution to the political impasse in Greece and as Spanish credit risk surged.

Bankia SA led a selloff in Spanish banks. Kloeckner & Co. and Mediaset SpA (MS) both plunged more than 8 percent after reporting first-quarter results. ING (INGA) Groep NV and Carlsberg A/S (CARLA) paced advancing shares.

The Stoxx Europe 600 Index (SXXP) lost 0.3 percent to 249.73 at the close of trading, the lowest since Jan. 13, as the euro weakened for an eighth day. The Stoxx 600 has tumbled 8.3 percent from this year’s high on March 16, trimming this year’s advance to 2.1 percent.

“The real concern isn’t about Greece, it’s about the euro and whether it breaks up — that is key,” Mark Tinker, a fund manager at AXA Framlington Investment Management said on Bloomberg Television in London. “We don’t make a big economic scenario after a couple of days of moves, but I think there is a lot of anxious market repositioning going on right now.”

The benchmark Stoxx 600 yesterday dropped 1.7 percent after Antonis Samaras, the leader of Greece’s biggest political party, failed to reach an agreement on a new government and the mandate passed to left-wing leader Alexis Tsipras, who opposes austerity measures required for the nation’s financial rescue.

The euro fell to 1.2948 against the dollar at 4:25 p.m., for its longest losing streak in 3 1/2 years, as Tsipras meets with leaders of New Democracy and Pasok, the two Greek parties that supported austerity.

Political Stand-off

Tsipras yesterday squared off with political leaders before talks on forming a coalition, handing them an ultimatum to renounce support for the European Union-led rescue if they wanted to enter government.

The stand-off since the inconclusive May 6 election has reignited concerns over Greece’s ability to comply with the terms of its two bailouts negotiated since May 2010. The country is again facing the risk of an exit from the euro.

National benchmark indexes fell in 14 of the 18 western- European markets. France’s CAC 40 lost 0.2 percent and the U.K.’s FTSE 100 declined 0.4 percent, while Germany’s DAX added 0.5 percent. Spain’s IBEX 35 Index sank 2.8 percent, its lowest close since October, 2003.

The cost of insuring against a Spanish default surged to a record on concern a bailout of Bankia (BKIA) won’t fend of a banking crisis triggered by bad real-estate loans. Credit-default swaps insuring Spanish government debt rose 13 basis points to 512 basis points a 10:55 a.m. in London, according to data compiled by Bloomberg.

‘Zombie Bank’

Bankia tumbled 5.8 percent to 2.13 euros, the lowest since it listed its shares in July 2011, as JPMorgan Chase & Co. downgraded the Spanish lender to underweight, the equivalent of a sell recommendation.

“While there is no danger of an imminent collapse at Bankia, there is a risk that it becomes a zombie bank, which has to rely on the European Central Bank to fund it over the long term,” said Roger Francis, an analyst at Mizuho International Plc in London.

Spanish 10-year government bonds extended a decline, pushing the yield on the securities above 6 percent for the first time since April 27. The yield climbed 20 basis points, or 0.17 percentage points, to 6.04 percent.

Banco Santander SA (SAN), Spain’s largest lender, dropped 4.5 percent to 4.64 euros and Banco Bilbao Vizcaya Argentaria SA (BBVA) retreated 4.7 percent to 5.01 euros.

Kloeckner, Mediaset

Kloeckner tumbled 8.2 percent to 8.33 euros after Europe’s largest independent steel trader reported a first-quarter loss of 10 million euros ($13 million), wider than the average analyst estimate for a 900,000 euro-loss. The company said its 2012 earnings will improve only if Europe’s economy recovers.

Mediaset lost 11 percent to 1.45 euros, the lowest since it sold shares to the public in July 1996. The broadcaster reported an 85 percent slump in first-quarter net income to 10.3 million euros after the close of trading yesterday on lower advertising sales. Analysts estimated net income of 6.5 million euros on sales of 984 million euros, according to a Bloomberg survey.

Mapfre SA (MAP) retreated 6.3 percent to 1.94 euros, the most since April 2010. The Spanish insurer reported a 13 percent drop in first-quarter net income to 271.4 million euros. That still beat the average analyst estimate of 250.3 million euros in a Bloomberg Survey.

ING, Carlsberg

ING paced advancing shares, climbing 1.7 percent to 5.08 euros. The biggest Dutch financial-services company reported earnings excluding one-time gains and losses of 705 million euros, surpassing the 632 million-euro estimate of analysts.

Net income sank 51 percent after a charge for a potential settlement of a U.S. probe offset a gain from the sale of its U.S. online bank.

Carlsberg jumped 3.8 percent to 490 kroner as the world’s fourth-biggest brewer confirmed its full-year outlook. The company reported a 43 percent drop in first-quarter operating profit, excluding some items, to 574 million kroner ($100 million) as it sold less beer in Russia. That missed the average analyst projection for 845 million kroner.

Lanxess AG (LXS) advanced 6.4 percent to 61.83 euros after the maker of synthetic rubber said growth in earnings may touch 10 percent this year, outstripping analysts’ estimates, as demand surges in emerging markets and the U.S. recovers.

For 2012, profit will probably grow 5 percent to 10 percent from last year’s 1.1 billion euros. Analysts estimated growth of about 6 percent.

ITV Plc (ITV) rose 2.2 percent to 82.50 pence. The U.K.’s biggest commercial broadcaster said it expects to outperform the TV advertising market in the first half and forecast ad revenue to increase by about 3 percent in the first half.

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Spain Meets Bond Target While French Borrowing Costs Fall

Spain Meets Bond Auction Target as French Borrowing Costs Fall

The Spanish Treasury sold 2.52 billion euros of bonds, exceeding its maximum target.

The Spanish Treasury sold 2.52 billion euros ($3.31 billion) of bonds, exceeding its maximum target. Still, Spain had to pay 4.037 percent to sell debt for three years, up from 2.617 percent at a March 1 sale.

The auction was the first long-term debt sale since Standard & Poor’s lowered the nation’s credit rating last week, leaving Spain three notches from junk status. The effect of the European Central Bank’s 1 trillion-euro three-year refinancing operation is also fading, leaving a clearer indication of demand.

“This is a proper, good, honest market now,” Peter Chatwell, a bond analyst at Credit Agricole SA in London, said in a telephone interview. “Expectations of big, blow-out auctions need to disappear. The yields are all sub-5 percent, that’s a comfortable level.”

The yield on Spain’s existing five-year benchmark declined 7 basis points to 4.7 percent at 12 p.m. in Madrid, and the yield on the benchmark 10-year bond fell 3 basis point to 5.82 percent. Spain also sold two five-year bonds at 4.752 percent and 4.96 percent.

France held its final auction before the nation chooses its next president in a final round of voting on May 6. The Treasury sold 3.32 billion euros of 10-year bonds at an average yield of 2.96 percent, down from 2.98 percent on April 5, as part of an auction of 7.43 billion euros of government debt. France’s 10- year bond yield fell 3 percent to 2.92 percent after the sale.

Rating Cut

S&P cut Spain’s credit rating two levels to BBB+ from A on April 26, citing concerns that losses buried in the country’s banking system may overwhelm government efforts to shore up public finances. The government has embarked on a third attempt to clean up the banking industry since a real estate bubble burst in 2008, leaving them hobbled with bad loans and overvalued assets.

Spanish bonds were the worst-performing of 26 sovereign- debt indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies in April, with losses of 1.8 percent. Italian securities were second worst, dropping 1.3 percent, after gaining 11 percent in the first quarter.

In February, the Spanish government increased the ratio of provisions to be set aside for land to 80 percent, while raising the ratio on unfinished developments to 65 percent and to 35 percent for other troubled assets including finished houses. The new provisioning rules cover about 180 billion euros of assets.

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Debate Grows as Europe Fears Return of a Crisis

Angela Merkel, the Chancellor of Germany

Angela Merkel, the Chancellor of Germany (Photo credit: Wikipedia)

BERLIN — The European financial crisis has shown signs of reigniting in recent days, sharpening the debate between the champions of austerity and a growing chorus urging more expansionary policies to promote growth.

Even the traditionally hard-line International Monetary Fund called on Tuesday for stronger European nations to ease the fiscal brakes by stretching out budget cuts over a longer period. But if that message was intended foremost for Germany, it seemed destined to fall on deaf ears: with two state elections coming up next month, Chancellor Angela Merkel is unlikely to shift her position, popular with voters, against additional help for the economies of struggling European partners.

“We don’t see the need that perhaps other countries see to boost growth through additional increases in expenditures,” said a senior official in the German Finance Ministry, speaking on the condition of anonymity.

“Instead, we see quite clearly, and will remind our partners about their responsibilities from Toronto,” the official said, referring to commitments made at the Group of 20 summit meeting in June 2010, “to cut their deficits in half and stabilize their debt levels.” At the same time, the official said that Germany hoped other countries would join in increasing the International Monetary Fund’s resources to help it combat the crisis.

Politics as much as economics is adding to the sense of uncertainty in Europe. President Nicolas Sarkozy of France, who is trailing the Socialist candidate François Hollande in the polls before the first round of the presidential election on Sunday, has joined his opponent in promoting pro-growth policies. In Greece, nationalist anti-German fringe parties are gaining strength ahead of next month’s parliamentary election.

The German state elections may not directly affect the federal government in Berlin, but they distract from Continent-wide concerns and crisis management while thrusting parochial issues to the forefront. The German government does not have a mandate to share further the burden of the common currency on less competitive economies like those of Greece, Portugal, Ireland and, increasingly, Spain and Italy.

What seems certain, however, is that the crisis will continue to fester until new measures are taken to address its root causes. Borrowing costs for struggling southern European countries like Spain and Italy have begun to rise again as the effect of the European Central Bank’s injection of about $1.3 trillion in cheap loans into the banking system in December and March has faded much faster than expected. The three-year loans were meant to buy time for struggling governments and financial institutions, but the breathing room appears likely to be measured in months rather than in years.

The recent shift has underscored that there have been no substantive fixes beyond promises by countries to reduce their budget deficits. “It looks like it’s coming back with a vengeance, largely because none of the underlying problems have been solved,” said Philip Whyte, a senior research fellow at the Center for European Reform.

Mr. Whyte said that despite two years of crisis management, the fundamental structure of the euro zone remained intact, with lower-productivity economies in the south yoked to higher-productivity economies in the north, which prevents the laggards from competing through a currency devaluation.

“The E.C.B. bought time, but what it ended up doing was simply tightening the link between national banks and their sovereigns,” Mr. Whyte said. “They made the system more vulnerable if markets started losing faith in debt sustainability in countries like Spain.”

Yields on Spain’s 10-year bonds climbed above 6 percent on Monday, though they fell slightly on Tuesday after a successful auction of short-term debt by Spain’s treasury. Spain has emerged as the central test this year after missing its deficit targets as it slips back into recession. The government in Madrid has had a difficult time reining in spending by the 17 regional governments.

A bailout of Spain would be much costlier than one for smaller economies like those of Greece, Portugal or Ireland, testing the resources of the euro zone countries. Many economists, particularly in the United States, have argued that Spain has to stimulate its economy with additional spending if it hopes to return to economic growth, an argument rejected by the German government.

In an interview with the German newspaper Frankfurter Allgemeine Zeitung on Tuesday, Christine Lagarde, the managing director of the International Monetary Fund, said she was concerned about the health of Spanish banks and warned against slashing spending too quickly. It is not a view shared here in the German capital.

In an interview with Reuters on Tuesday, Germany’s finance minister, Wolfgang Schäuble, praised Spain for making difficult economic changes. “You don’t win back trust overnight,” Mr. Schäuble said, adding that Spain was following the right path by cutting spending. German officials have also recommended changes in labor markets as a longer-term strategy to promote growth.

As deficits balloon in countries across Europe, Germany continues to watch its deficits and financing costs fall. In another sign of Germany’s recent strength, the Bundesbank said on Tuesday that the country’s debt had fallen to 81.2 percent of gross domestic product in 2011, compared with 83 percent in 2010. That is still far above precrisis levels: in 2007, German debt was 65.2 percent of the size of the country’s economy.

“The problem with the crisis in Germany is that we know we have a crisis, but we don’t feel it,” said Eckart D. Stratenschulte, a political scientist and the director of the nonprofit European Academy Berlin.

Even as the European Central Bank loans improved market conditions, European leaders, including Ms. Merkel, were clear that they did not believe that the crisis was over. Many in Germany argue that a sense of crisis — and the elevated borrowing costs that come with it — is necessary to end out-of-control spending in the heavily indebted nations and to push through the economic liberalization they need to restore growth.

But the higher borrowing costs and austerity measures cut into growth, critics say, lowering government revenues in a self-defeating downward spiral and leading to higher interest rates and further budget cuts. “It’s concerning that the markets are again running out of patience and driving yields higher,” said Thomas Mayer, chief economist at Deutsche Bank in Frankfurt. “That creates further head winds.”

The I.M.F. on Tuesday raised its forecast for global growth slightly for the year. In Europe, the fund projected recovery in the second half of 2012, except for Spain, Italy, Greece and Portugal, where substantial improvement is not expected until next year.

The crisis, Mr. Mayer said, is like “a manic depressive moving between euphoria and worries, and now we’re in the valley of worries again.”

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Return of the euro crisis After the sugar rush – PFG Special Report

 

April 14, 2012

Mathieu Armand
European Regional Managing Director – Asset Management

Spanish bond yields have risen as the effect of cheap ECB cash wears off

THE high is over. The European Central Bank’s two long-term refinancing operations (LTROs) in December and February saw commercial banks borrow over €1 trillion ($1.3 trillion) of three-year money at the ECB’s main interest rate, which it had cut to 1%. Ostensibly a scheme to keep euro-area banks afloat, the LTROs also boosted flagging public-debt markets in the zone’s southern periphery, as banks used some of the cash to buy high-yielding bonds. That effect has faded.

Spain’s ten-year government-bond yield has been rising since the second tranche of three-year ECB cash was doled out. This week it reached almost 6%, the highest level since November (see chart 1). The U-turn owes a lot to the shifting dynamics of the euro-zone bond markets, which have also affected Italy. Missteps by Spain’s new government have not helped. Beneath all this lie deeper fears about Spain’s injured banks, the stringency of the government’s fiscal plans, and the impact of both on an already weak economy.

Start with the bond-market dynamics. With tacit support from regulators, the stock of government bonds held by Spanish and Italian banks rose by €122 billion between November and February. Prices

surged and yields fell. Hedge funds which had sold borrowed bonds in the hope that prices would fall were forced to buy them back. The rally lured others in.

This virtuous cycle turned vicious in early March. Some investors say the buying petered out once yields fell below 5%, when the bonds might no longer be considered cheap. But the conclusion of the second and last LTRO may have been the main trigger. Banks which bought periphery bonds have used up their ammunition. “The minute the ECB says ‘no more,’ the bank bidder is lost,” says a hedge-fund manager. Since there are few committed buyers of bonds beyond such banks, the smart money bet that yields would rise again. Brokers are less willing to take bonds off sellers’ hands in the hope that buyers eventually turn up, says Andrew Balls of PIMCO, a fund manager. In thinly traded markets, bond prices can suddenly shoot up if only a few investors take fright and start selling.

The clumsy handling of Spain’s 2012 budget may have persuaded some to sell. The newish Spanish government delayed it until after local elections in March; it also announced that its deficit target would be 5.8% of GDP, not the 4.4% agreed with European leaders (the compromise was a goal of 5.3%). The budget minister, Cristóbal Montoro, and the economy minister, Luis de Guindos, “contradict each other all the time”, complains a Spanish economist.

Yet Spain has deeper problems than muddled messages. The 2011 budget deficit was 8.5% of GDP, not the goal of 6%, in large part because of overspending by Spain’s autonomous regions. The economy is in recession—industry shrank by 5.1% in the year to February according to figures released on April 11th. Attempts to cut the deficit by 3.2% of GDP in a year will make things worse. Reforms to the jobs market, making it cheaper to fire workers and easier to set pay locally, will benefit Spain’s economy in time but not now.

Anxiety about Spain’s banks worsens the outlook further. A messy end to Spain’s long construction and mortgage boom means a lot of bank loans have already turned sour. More are likely to. Property prices have not yet fallen as far as in Ireland, the euro zone’s other housing black spot. Investors fear that the state will be called on to recapitalise Spain’s banks.

To complicate matters, much of Spain’s huge private debt is owed indirectly to foreigners via its banks. Spain’s net investment deficit—the sums owed to foreigners by firms, householders and the government, less the foreign assets they own—comes to 93% of GDP, the accumulation of a long series of current-account deficits. The increasing home bias of euro-zone investors makes it harder for countries with foreign debts to roll them over. Greece and Portugal have similar foreign debts but have higher borrowing costs (see chart 2).

Spain and Italy could not live with today’s borrowing costs for long unless the outlook for their economies were to improve dramatically. So they may have to look to outside help. But it would be hard for the ECB to sanction another LTRO so soon, reckons Laurence Boone of Bank of America. The ECB could restart direct bond purchases: Benoît Cœuré, a member of the bank’s six-strong executive board, suggested on April 11th that it might, which helped push Spain’s bond yields down a bit. But that would make existing investors worry more about subordination to the ECB in the event of a restructuring. In any case Mario Draghi, the bank’s president, has recently said high yields are the bond markets’ way of asking governments to implement promised reforms.

Spain could volunteer for the kind of support programme that Greece, Portugal and Ireland have signed up to. But Italy is scarcely in any less trouble and the euro zone’s meagre rescue fund could not stretch to a bail-out of both countries for long. A more likely outcome is that Spain is eventually forced to draw on the shared rescue fund to recapitalise its banks, which might in turn take pressure off its sovereign-borrowing costs. Meanwhile, some have turned to the next trouble spot. “France is our cheapest and biggest short,” says one hedge-fund manager.

 

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Dow closes below 13,000 for first time in a month

INVESTORS had a three-day weekend to brood over disappointing job growth in March. When they got back to work and delivered their verdict, it wasn’t good.

Stocks closed sharply lower today, sending the Dow Jones industrial average and the Standard & Poor’s 500 index to only their second four-day losing streak this year.

The Dow finished down 130.55 points at 12,929.59, its first close below 13,000 since March 12. The S&P ended the day off 15.88 points at 1382.20. The Nasdaq composite closed down 33.42 at 3047.08.

The Dow and S&P had four consecutive trading days of declines at the end of January, but the losses then were smaller. The Dow lost 124 points over that stretch. It has lost about 330 this time.

Stocks had their best first quarter since 1998 but have stumbled in April. Last week, the Federal Reserve suggested that it is disinclined to take further steps to help the economy, and the European debt crisis flared in Spain.

Then on Friday, with the stock market closed for Good Friday, the Government said the country added just 120,000 jobs in March, half the pace from December through February.

After a long weekend to think it over, investors sold stocks broadly. All 10 industry groups in the S&P 500 fell overnight, with financial stocks the worst performers. Bank of America fell 3.2 per cent, and Citigroup was off 2.4 per cent.

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Italy’s Monti blames Germany, France for eurozone crisis

Italy's Monti blames Germany, France for eurozone crisis

Italian Prime Minister Mario Monti heaped blame for the eurozone debt crisis on Germany and France on Wednesday, saying they had set a poor example early in the bloc’s existence by flouting fiscal rules and exceeding deficit limits.

Italian Prime Minister Mario Monti on Wednesday said the root of Europe’s debt woes lay partly in the irresponsible parenting of Germany and France during the bloc’s infancy.

Monti told reporters in Tokyo that because the eurozone’s two largest players had not abided by fiscal rules, they had set a bad example for the rest of the continent.

“The story goes back to 2003 (and) the still almost infant life of the euro,” Monti said.

“It was in fact Germany and France that were loose concerning the public deficits and debts.”

The widely-respected technocrat, who replaced billionaire media magnate Silvio Berlusconi in November as head of the eurozone’s third largest economy, said the flouting of rules allowing for an annual budget deficit of no more than three percent of GDP was the issue.

He said despite recommendations, a meeting of ministers from European Union governments had decided not to punish France and Germany for going beyond the deficit limit.

“So the two largest countries in the eurozone had the (deficit) with complicity of Italy, which was then chairing under the rotation system the council of prime ministers of European Union.

“Of course if the father and mother of the eurozone are violating the rules, you could not expect… (countries such as) Greece to be compliant.”

Monti, who was speaking during a visit to Japan, was a member of the European Commission in the early 2000s when it recommended sanctions be levied against countries that were running over-the-top deficits.

The European Council – comprising elected politicians – vetoed the move.

Monti’s visit to Japan comes as Europe continues to stagger under the weight of runaway sovereign debt, with Greece at the forefront.

The eurozone is under pressure to boost the firepower of its debt rescue fund, with the 34-nation OECD on Tuesday pressing for a safety net of at least 1.0 trillion euros ($1.33 trillion).

Eurozone finance ministers are meeting on Friday and Saturday in Copenhagen to decide whether to increase the size of their debt rescue mechanism amid resurgent concerns about the financial health of Spain.

The OECD said the refinancing needs of vulnerable eurozone nations could top 1.0 trillion euros over the coming two years, on top of cash needed to recapitalise banks.

Italy alone needs some 750 billion euros to finance its debt, while Spain requires around 370 billion euros over the next three years.

Asked about the size of the hike in the eurozone firewall, Monti declined to give a specific figure but said: “I’m confident that the compact is solidly in place, the time for a conclusive and adequate decision on the firewalls has come.”

The premier, who was due to meet his Japanese counterpart later in the day, said he believed Europe now had a handle on its debt crisis and Italy was unlikely to suffer at the hands of the markets the way that Spain had.

“I think contagion (is) certainly not from Spain. Spain is I’m sure on a steady course of budgetary consolidation.

“And contagion as a whole I hope will soon belong to the past, now that more discipline is being adhered to by most member states and now that the firewalls are in the process of being fortified,” he added.

The Copenhagen meeting will also focus on Spain’s plans to rein in its public deficit to 5.3 percent of gross domestic product.

European leaders are concerned over Spain’s deficit, fearing it may become the biggest victim of a eurozone debt crisis that has already driven Greece, Ireland and Portugal to accept international bailouts.

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