Eurozone leaders meet amid debt turmoil

March 11, 2011 at 3:00 AM
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BRUSSELS, March 11 (UPI) -- The euro slid toward a three-month low as 17 European Union leaders met in Brussels, 13 days ahead of a summit on ending the European sovereign-debt crisis.

The euro traded around $1.39 in Tokyo from $1.3798 in New York Thursday. The currency fell more than 1.2 percent this week, the biggest decline since the first week of January.

Leaders from the 17 EU countries that use the euro as their sole legal tender were expected to agree Friday on a new pact, demanded by Germany and France, to inject more discipline into the currency zone by making changes such as raising retirement ages and imposing a strict cap on public debt, The New York Times and Financial Times reported.

The leaders were expected to agree on limiting wage rises to productivity, the Financial Times said.

Once the pact is approved by the 17 eurozone countries, the 10 remaining EU members outside the eurozone would be invited to join.

The Brussels meeting, amid deep tensions within the union, was billed as a prelude to a March 24-25 EU summit, at which leaders promise to deliver a long-term solution to the European economic crisis, which the Trends Research Institute forecast would lead to a decisive change.

Failure to resolve the European debt crisis would pose just as big a risk to the global recovery as the Libyan, North Africa and Middle East unrest, economists cited by Canada's Globe and Mail warned.

The Trends Research Institute said it could spell the end of the eurozone.

Portugal's growing distress is expected to be high on the Brussels agenda, amid increasing expectations the country will be forced to join Greece and Ireland among eurozone members receiving costly bailouts.

Both countries have pleaded with their EU partners for easier terms for their respective rescues, amid worsening fiscal and economic conditions. Portuguese officials have repeatedly insisted they will meet all their financing requirements and have no need of outside assistance.

The European Central Bank said last week it would not keep interest rates artificially low merely to help ease the crisis. The bank could raise rates as early as next month, bank President Jean-Claude Trichet said.

Moody's Investor Service slashed Greece's sovereign-debt rating to "junk bond" status, indicating its bonds had a high risk of default, despite their attractively high yields.

The credit-rating agency said Greece faced many risks, including "considerable difficulties with revenue collection."

Portugal received a debt downgrade Wednesday to triple-B-plus from A-minus by China's Dagong Global Credit Rating Co. This is considered "investment grade," but Dagong gave Portugal a negative outlook due to the slowing economy and "uncertainty" over fiscal changes.

Moody's downgraded Spain's sovereign debt to Aa2 from Aaa, saying the cost of recapitalizing Spain's ailing banks would be at least twice the $28 billion upper limit Spain predicted last month. Moody's said the amount could rise to as high as $166 billion "in a more stressed scenario."

Spanish Prime Minister Jose Luis Rodriguez Zapatero disputed Moody's assessment, saying Spain's central bank, and not Moody's, had the "information and credibility" to evaluate bank needs.

A Bank of Spain study released Thursday put the overall cost of recapitalizing the country's weakest banks at $21 billion.

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