Schäuble strives to calm markets over Italy
German Finance Minster Wolfgang Schäuble sought to quell panic on the financial markets Tuesday, as fears about the debt crisis spreading to Italy battered the DAX and fuelled fears of a crisis contagion.
After a meeting of finance ministers in Brussels that canvassed new options but reached no firm decisions, Schäuble said that above all, leaders must make sure “that in such a nervous situation, we don’t increase the risk of contagion.”
He sought to reassure fidgety markets about Italy, telling broadcaster Deutschlandfunk that speculation about the solvency of the eurozone's third largest economy – a problem on a whole new scale were it to eventuate – would soon subside. Italy’s finance minister had presented the country’s draft budget and there was no doubt the parliament would reach a decision on it, he said.
Previously, finance ministers from the Euro Group had discussed giving Greece some extra breathing space by reducing the interest rate and the period on repayment on its emergency credit.
For the first time, finance ministers are considering having the temporary rescue fund the EFSF buy out, at a discount, the existing debt held by private investors. Germany had long opposed this latter measure but there has now “been movement in the discussion,” an EU official said with regard to Berlin’s position, according to daily Bild.
Market fear centred primarily on the doubts about Italy. This battered stock markets with Germany’s DAX shedding 200 points to dip below 7,000 points Tuesday morning before recovering slightly.
Schäuble said the excessive debt in some member countries was damaging trust in the eurozone as a whole. The overly high deficits among some euro members was the root cause of the crisis of faith, and this had to be fixed, he said.
“Of course we need a bit of time now, before markets are convinced that this will really work,” he added. “I believe that on the whole we are on a sensible course.”
He also stuck to his position that in the case of debt-laden Greece, some way must be found for private investors such as banks and pension funds that hold Greek bonds to participate in any future bailout so that the burden was not left to taxpayers alone.
A plan by France and Germany to roll over Greek debt, whereby banks would agree to buy new bonds when the current ones reached maturity, was thrown into disarray when ratings agency Standard & Poor’s said the plan would constitute a default by Greece, raising fears of debt crisis contagion to other countries.