Europe fails to tackle debt; worsens uncertainty

Stephen Beard Aug 18, 2011

Europe fails to tackle debt; worsens uncertainty

Stephen Beard Aug 18, 2011

Kai Ryssdal: I’m not sure I really need to say this, given the synchronicity that global exchanges have been experiencing of late, but European stocks fell sharply today. Main indices in London, Paris and Frankfurt all gave up 5 percent or more. European bank shares, just to echo what Heidi was saying, dropped 10 percent.

Traders were clearly worried about the banks’ exposure to the most heavily indebted countries in the Eurozone, and about the prospects that European leaders might not actually be able to solve the long running debt crisis.

From the European Desk in London, Marketplace’s Stephen Beard reports.

Stephen Beard: This week, the leaders of Germany and France unveiled a grand plan to solve the debt crisis. They called it an “Economic Government” for Europe. The idea: to have the 17 Eurozone countries coordinate their economies and their public spending.

So is it going to work? Steve Barrow of Standard Bank.

Steve Barrow: No, it’s a very long way from solving the debt crisis. We’ve heard all this sort of thing before from Eurozone leaders.

The markets want hard cash, not grand plans. They fear that Spain and Italy may not be able to pay their debts. Investors want to see the Stability Facility, or bailout fund, beefed up.

Marchel Alexandrovic is with Jefferies International Bank.

Marchel Alexandrovic: They have to shore up the markets in the near term, and that probably means expanding the size of the stability mechanism to support countries that need it across Europe.

But the Germans, who must stump up most of the cash, are suffering from bailout fatigue. They’re refusing to cough up any further. And says Steve Barrow, they’re not keen on the other main solution either: a unified Eurobond for all Eurozone governments, with the same rate of interest for all, backed by the whole of the Eurozone.

Barrow: Germany is concerned that, why should other countries that have not been as tough on the budget as Germany — like Greece and Ireland, for instance — why should those countries pay the same interest rate as Germany?

Financial logic suggests that some Eurozone governments may in the end default. And some banks go bust. But the Eurozone is in denial. The search goes on for a less painful solution.

In London, I’m Stephen Beard for Marketplace.

Ryssdal: Debt’s a global phenomenon in the economy right now. On a lot of people’s minds. We went to London this morning and asked this question:

Debt: good, bad or both?

John Byrne: You need to have debt, you need to have leverage and you need to have credit. Without that, if we’re just sort of a cash-based society, then companies can’t grow, people can’t get education. I mean, most of daily activities are based on some kind of debt.

Kirun Kazalbash: When people are in debt for a period of time, and you see they can pay the debt, it should be worked off, like we worked the bankers’ off. Then you get a chance to start again.

Nora Nona: I mean it’s pretty overwhelming, the amount of debt that we’re under. And for me, I feel personally that I’m probably in an OK place, but I know that’s not necessarily the case for the general public.

And this from the colonies.

Joanne Blocher: I think it’s kind of scary, but I don’t think we’re as bad off as other countries, though, either.

Don Cropper: I think debt is basically a financial tool that you can use to leverage your situation.

Joy Hamilton Jones: You have people who have never had any debt who can’t get credit, so I don’t necessarily think debt is a bad thing.

Todd Haynes: Debt is the devil. I mean, literally.

Maria DeLaVega: It’s a necessary evil; it has to exist. It’s what this country kind of runs on.

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