289 lines
8.7 KiB
Plaintext
Executable File
289 lines
8.7 KiB
Plaintext
Executable File
finance
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financialcrisis
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8208312
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-----
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# EU agrees to create permanent financial saftety net
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## European Union leaders have agreed to create a permanent financial safety
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net from 2013 and the European Central Bank moved to increase its firepower to
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fight the debt crisis that has rocked the euro zone.
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![EU agrees to create permanent financial saftety net. European Commission
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President Jose Manuel Barroso (left) and European Council President Herman
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Van Rompuy speak after the first day of the EU summit.][1]
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European Commission President Jose Manuel Barroso (left) and European Council
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President Herman Van Rompuy speak after the first day of the EU summit. Photo:
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AFP
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Reuters 8:28AM GMT 17 Dec 2010
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[Comments][2]
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European Union leaders have agreed to create a permanent financial safety net
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from 2013 and the European Central Bank moved to increase its firepower to
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fight the debt crisis that has rocked the euro zone.
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But at Germany's insistence, the 27 leaders said the long-term crisis-
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resolution mechanism, to be added to the EU's governing treaty, would only be
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activated "if indispensable to safeguard the stability of the euro as a
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whole".
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They also decided there was no need to increase an existing temporary rescue
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fund, which some analysts say could be insufficient if Spain and Portugal need
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EU/IMF bailouts after Greece and Ireland, nor did they discuss using it more
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flexibly.
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The decision not to enlarge or even discuss enlarging the existing fund could
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be taken by financial markets as a sign of division, potentially provoking
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more market uncertainty.
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"The decision taken was that there will be no enlargement or deepening of the
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funding means at the disposal of the EFSF," said Luxembourg's Prime Minister
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Jean-Claude Juncker, referring to the existing European Financial Stability
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Fund.
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## Related Articles
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* [ECB doubles capital base to stem Spanish crisis][3]
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17 Dec 2010
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* [Spanish debt auction pushes borrowing costs to decade high][4]
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16 Dec 2010
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* [EU bail-out fund: no UK guarantee][5]
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15 Dec 2010
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* [Irish loan won't add to UK deficit, says Osborne][6]
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15 Dec 2010
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But leaders said they were prepared to do whatever it takes to protect the
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euro, a position they have reiterated for months.
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"The heads of state and government of the eurozone stand ready to do whatever
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is necessary to ensure the stability of the euro zone as a whole," European
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Council President Herman Van Rompuy told a news conference after chairing the
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first day of a two-day EU summit.
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The ECB, in charge of monetary policy in the 16-nation euro area, said it
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would almost double its capital to €10.76bn to cope with bigger credit risk
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and market volatility. Eurozone members will provide the increase.
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ECB President Jean-Claude Trichet told reporters the central bank's governing
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council thought it was appropriate to make "additional provisioning" -- a
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veiled reference to potential losses on euro zone sovereign bonds it has
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bought.
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IMF Managing Director Dominique Strauss-Kahn, who has been critical of EU
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leaders' disjointed response to the rolling crisis, said he was concerned
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about slow growth and the threat of contagion in Europe.
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"I'm worried and that's why I'm urging the Europeans to provide for a
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comprehensive solution, because this piecemeal approach obviously doesn't
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work," Mr Strauss-Kahn told a Thomson Reuters Newsmaker event in Washington.
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"And the markets are just waiting for what's next."
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The leaders - holding a record seventh summit this year - approved a two-
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sentence amendment to the EU treaty at Germany's behest to permit the creation
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of a European Stability Mechanism to handle financial crises from June 2013,
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Van Rompuy said.
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The ESM, to replace the temporary European Financial Stability Facility
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created in May, will be empowered to grant loans on strict conditions to
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member states in distress, with private sector bondholders sharing the cost of
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any writedowns.
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The aim is for all 27 member states to ratify the change by end 2012. Van
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Rompuy said no country would need to put it to a referendum, removing one
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potential risk. Decisions will be taken by unanimity, ensuring that EU
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paymaster Germany retains a veto.
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The EU, together with the IMF, set up a €750bn EFSF loan pool to help highly
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indebted euro zone states unable to finance themselves in volatile markets.
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The decision by the Frankfurt-based ECB to raise its subscribed capital base
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was the first such increase in its 12-year lifetime, a mark of the severity of
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the situation.
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The central bank has bought some €72bn in eurozone government bonds since May
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but has resisted political pressure to step up these asset purchases
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substantially to help indebted governments avoid having to seek a bailout.
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Credit ratings agency Moody's highlighted investor fears about the first
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country to receive an EU/IMF rescue by saying it was putting Greece under
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review for a downgrade, due to uncertainty over its ability to cut debt.
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Strauss-Kahn said he was concerned about the length of the process Europe was
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going through to resolve its crisis and said the EU needed to find a
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"comprehensive" solution.
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But he voiced optimism that Spain would be able to ward off the worst of the
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debt crisis without needing a rescue, and said he saw no threat to the euro's
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existence.
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German Chancellor Angela Merkel, who pressed for the treaty change to assuage
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Germany's constitutional court, got her way by keeping other ideas, such as
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increasing the size of the EFSF or issuing euro zone bonds, off the summit
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agenda.
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Throughout 2010, EU leaders have struggled to show unity and clear
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communication in handling the crisis, alternating between rushing out half-
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formed or contradictory proposals and dithering on the right course of action
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while markets burned.
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There has been a relative lull in financial market pressure in the past two
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weeks as investors and traders close their books ahead of the end of the year,
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but analysts expect pressure to resume in 2011 without action.
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http://www.telegraph.co.uk/finance/financialcrisis/8208312/EU-agrees-to-
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create-permanent-financial-saftety-net.html
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Telegraph
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## [Financial Crisis][12]
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* ### [Finance »][13]
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* ### [Economics »][14]
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* ### [Business Latest News »][15]
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* ### [EU »][16]
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In finance
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[![Truncheon-wielding police in Barcelona have clashed with protesters at a
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makeshift camp that is one of dozens erected in Spain to protest at high
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unemployment][17] ][18]
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### [Spanish anti-crisis protests][18]
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[![Thousands of protesters occupy Puerta del Sol square in Madrid][19] ][20]
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### [Huge protests in Madrid][20]
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[![Riot police use tear gas as protesters throw petrol bombs in Athens][21]
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][22]
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### [Tear gas and petrol bombs][22]
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[![Irish bank stress tests: the key points][23] ][24]
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### [Irish bank stress tests: key points][24]
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[![Q&A: What is the Independent Commission on Banking?][25] ][26]
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### [Q&A: What is the Independent Commission on Banking?][26]
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[X][7] Share & bookmark
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[What are these?][8]
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Share:
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* [ ][7]
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* [ ][9]
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* [ ][10]
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* [Tweet][11]
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* Advertisement
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![][27]
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telegraphuk
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Please enable JavaScript to view the [comments powered by Disqus.][28] [blog
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comments powered by Disqus][29]
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[![][30]][31]
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