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Eurozone under fire as ministers meet

07 november 2011, 16:33
Eurozone finance ministers regroup on Monday to press Greece's new authorities to stick to austerity pledges as nations sharing the currency faced a new spectre of crisis in Italy, AFP reports.

As ministers headed to Brussels for 1600 GMT talks, borrowing costs for Italy, the eurozone's third-biggest economy, rose to the highest level since the creation of the euro in 1999.

Asian markets slipped in nervous trading awaiting developments in the never-ending two-year eurozone drama as Greece tried to form a cross-party government and the yield on Italian 10-year debt bonds rose to a record 6.596 percent in early trading.

Such high borrowing costs are close to levels which forced Greece, Ireland and Portugal into EU-IMF bailouts.

Stocks in Paris and Italy slumped and in Spain, another fragile euro state, markets plunged 3.25 percent at opening.

In Brussels, the ministers will decide on whether to release eight billion euros ($11 billion) in loans to a future Greek coalition government agreed in a dramatic deal in Athens late on Sunday.

With the risk rising that Italy could be the next domino to fall, they will also look at how to beef up a rescue fund currently too small to rescue the likes of Italy, Spain, or even France where new austerity measures were imminent, after failing to win support from international partners at G20 talks last week.

In Athens, Prime Minister George Papandreou agreed to step down overnight to make way for a national unity government expected to ratify a crucial 230-billion-euro debt rescue package, agreed days ago by Greece's euro partners but in limbo due to political drama in Athens.

Pending an end to the government crisis, the eurozone held back eight billion euros in loans from an existing 110-billion-euro bailout until receiving clear pledges to the massive debt reduction deal agreed October 27.

Greece needs the cash by mid-December to stay afloat, but European leaders want Athens to show it will fulfill its end of the bargain after Papandreou stunned partners with a short-lived bid to put the deal to a referendum.

"The Greeks must prove that they will really fulfill the conditions," Belgian Prime Minister Yves Leterme told RTBF television on Sunday.

Papandreou and opposition chief Antonis Samaras were to hold new talks on Monday to find a new prime minister who will head a coalition expected to ratify the rescue package and then lead the country to elections.

The eurozone rescue deal includes 100 billion euros in new loans for Greece and a debt reduction scheme with banks, which agreed to lose 50 percent of their bond holdings to cut Greece's debt by 100 billion euros.

With pressure mounting on Italy, eurozone ministers are also in a hurry to beef up the firepower of the bloc's bailout fund, the European Financial Stability Facility (EFSF).

Eurozone leaders have agreed to boost the EFSF by "leveraging" its capacity from 440 billion to one trillion euros, via a debt insurance scheme.

"Initially the idea was for the (EFSF) to be ready by the end of the year, but we want to accelerate the work because of the market uncertainty and the situation in Greece," an EU official said.

The eurozone also hopes to convince emerging powers such as China to come to its aid, possibly through the IMF, which is sending officials to Monday's talks.

But in Beijing, a top official of China's $400 billion sovereign wealth fund accused Europe of "indolence" and said any Chinese investment in the debt-laden region would be based on financial returns.

Jin Liqun, chairman of the board of supervisors of China Investment Corp, slammed European welfare systems and said the continent must address its own problems to attract outside investment.

"If you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of the worn out welfare society," Jin told Al-Jazeera television in an interview broadcast at the weekend.

"The labour laws induce sloth, indolence, rather than hardworking."

Jin, a former vice finance minister, said Beijing would consider investing in Europe but any decision would be based on likely investment returns.

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