Bloomberg News

Europe Blasted by Asia-Pacific Nations Seeing Growth Weaken

November 13, 2011

(See {EXT2 <GO>} for more on the APEC meetings.)

Nov. 11 (Bloomberg) -- Finance chiefs from Asia-Pacific nations said European policy makers must step up efforts to resolve their debt crisis, signaling reluctance for now to embrace large-scale financing help.

The euro region’s rescue plan “needs to be put in place with the speed that markets require and with the force necessary to restore confidence,” U.S. Treasury Secretary Timothy F. Geithner said after an Asia-Pacific Economic Cooperation meeting. Australian Treasurer Wayne Swan urged Europeans to “get your act together,” while his Canadian counterpart said Europe could solve its own problems given the resources it has available.

The comments yesterday in Honolulu reflect impatience at Europe’s failure to get to grips with a crisis Geithner said is the “central challenge” to global growth. Italian bond yields this week surpassed the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts as Europeans failed to bridge divisions over creation of a permanent rescue fund.

“Outside pressure is to be expected and you want to keep the European politicians’ feet to the fire because everyone wants it to be over,” said Tim Condon, head of Asia research at ING Groep NV in Singapore and a former World Bank economist. “There are intense bouts of anxiety and visible loss of wealth when you have a 4 percent correction in stock markets. No one likes that.”

Stock Market

The MSCI Asia Pacific Index of stocks was down 2.7 percent for the week as of 2:52 p.m. in Tokyo, and has retreated 16 percent since late July as the euro-region’s woes undermined demand for Asian exports. A government report yesterday showed China’s shipments abroad rose the least in almost two years in October.

“These issues have been on the agenda and they haven’t just snuck up on anyone,” Swan told reporters in Honolulu, noting that the euro area has been discussing its sovereign debt problems for about 18 months. “We’ve got to keep that pressure up because the stakes are really high.”

European finance ministers earlier this week failed to bridge divisions over the European Stability Mechanism, a permanent rescue fund designed to start in mid-2013. Finance officials at APEC, concerned by the impact of the crisis on exports, focused on how they could protect their economies rather than ways to assist the debt-stricken euro zone.

The world is paying “a very high price” for Europe’s failures and its policy makers don’t have a “firm grip” on the challenges they face, Swan said. He was speaking a day before Italy’s senate considers a package of debt-reduction measures that includes waiting until 2026 to raise the retirement age by 24 months.

Currency Pledge

APEC finance ministers today pledged to move “more rapidly” toward market-determined exchange-rate systems and to increase currency flexibility. The officials from the 21-member grouping also said they will avoid persistent exchange-rate misalignments and refrain from competitive devaluations.

“We reiterate that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” the ministers said in a statement after their meeting.

Geithner encouraged China to allow its currency to strengthen. President Barack Obama’s administration contends that China’s yuan is undervalued. Obama has pressed Chinese leaders to take steps to boost domestic consumption to reduce lopsided global trade and investment flows.

Geithner on China

“This process of rebalancing will be aided by exchange- rate policies in China and other Asian economies that allow their currencies to adjust in response to market forces,” Geithner said. “China, in particular, must continue to allow its currency to strengthen, and China has acknowledged the importance of faster exchange-rate adjustment.”

The record strength in the Japanese yen is threatening the nation’s recovery from the March 11 earthquake, Vice Finance Minister Fumihiko Igarashi told APEC finance chiefs today. Japan aims to turn the strong yen to its benefit, Igarashi said.

Asian policy makers have shifted their focus to shielding growth, rather than stemming inflation, as Europe’s debt woes and a struggling U.S. economy increase the risk of another global recession. Australia and Indonesia have cut interest rates this month, while the Philippines announced last month a fiscal stimulus package to spur the economy.

“As the United States continues to work through the problems that caused our crisis and Europe confronts a period of slower growth, Asian economies will need to do more to stimulate domestic demand growth -- both so they are less vulnerable to slowdowns, such as the situation in Europe, and so they can continue to contribute to global growth,” Geithner said at a news conference today.

Philippines’s Take

Europe isn’t dealing with its financial crisis “forcefully,” Philippines Finance Secretary Cesar Purisima said separately in Honolulu today. Euro zone leaders need to act quickly to “overwhelm” markets, Canadian Finance Minister Jim Flaherty said in an interview at the APEC meeting.

European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to ramp up bond purchases to lower Italy’s borrowing costs. The central bank, which cut interest rates last week, lends banks as much cash as they need and has announced a second round of covered-bond purchases.

Concern that the region’s debt crisis may cause the currency union to fracture escalated even after European leaders agreed last month to boost the firepower of the rescue fund for indebted countries. Italian 10-year bond yields surged to a euro-era high of 7.46 percent on Nov. 9 as investors questioned the ability of its lawmakers to restrain the euro-region’s second-largest debt load after Greece.

2008 Shadow

“There’s always the danger in these situations, as we learned back in 2008, that markets and events can get ahead of government authorities,” Flaherty said. The IMF may need to commit more funds to prevent global credit markets from seizing up if Europe’s debt crisis continues to deteriorate, he said.

While APEC officials are in favor of more funding for the IMF, it was less clear if any of those resources should be used for Europe, Flaherty said.

Swan said that he and South African Finance Minister Pravin Gordhan had presented a paper to the Group of 20 finance officials before an October meeting calling for an increase in resources for the IMF. The Washington-based lender should only help Europe if the region takes “necessary actions to help itself,” Swan said.

Any IMF loans to the region should be accompanied by “appropriate conditions” to ensure that necessary reforms are taken and there can be no “special deal” for international financing for Europe, Swan said.

--With assistance from Aki Ito and Andrew Mayeda in Honolulu. Editors: Chris Anstey, Patrick Harrington

To contact the reporter on this story: Shamim Adam in Honolulu at sadam2@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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