Bloomberg News

Obama Says Europe Making Progress as APEC Nations Fear Worst

November 13, 2011

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

Nov. 12 (Bloomberg) -- U.S. President Barack Obama said formation of new governments in Greece and Italy may help calm world markets roiled by the European debt crisis, which is having a “dampening effect” on the global economy.

“We’re not going to see massive growth out of Europe until the problem’s resolved,” Obama told corporate chief executive officers gathered in Honolulu today as part of the Asia-Pacific Economic Cooperation forum. The president said he was “cautiously optimistic” of getting through the current crisis.

Europe’s sovereign-debt crisis was a frequent topic at the summit aimed at improving economic ties in the Asia-Pacific region as officials said they are bracing for a worsening of the situation in Europe that may push the global economy into a recession and increase volatility in financial markets. Investors this week pushed Italian bond yields passed the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts, ahead of the resignation today of Italian Prime Minister Silvio Berlusconi.

“You can’t talk about Asia without talking about Europe right now,” Jerry Webman, chief economist at OppenheimerFunds Inc. in New York, told Bloomberg News in Honolulu yesterday. “Having a prolonged economic slump in Europe is really threatening to the export-oriented Asian economies.”

Emerging-market nations from Brazil to China to Indonesia have started to cut interest rates or increase fiscal measures to shield growth as Europe’s debt woes and a struggling U.S. economy increase the risk of another global downturn.

‘Frustratingly Slow’

Europe’s fiscal woes have turned into a “global crisis,” International Monetary Fund Deputy Managing Director Zhu Min said in Honolulu yesterday.

“I believe we are not likely to become better without going through an even rougher patch,” Hong Kong Chief Executive Donald Tsang said in Honolulu yesterday. “The markets will be very jittery. Global performance will be dragged down, and then there may be an awakening.”

Obama said it’s important that Europe stand behind individual members of the euro zone to resolve the debt crisis. The aim is to “at least contain the crisis” in the short term, he said, adding the leaders in Italy and Greece are demonstrating a commitment to the “structural reform” needed.

Austerity Measures

Berlusconi’s resignation paves the way for former European Union Competition Commissioner Mario Monti to form a government that can protect Italy from being overwhelmed by the region’s debt crisis.

The Italian Senate approved an austerity package yesterday, raising optimism the euro area’s second-most-indebted country will control its debt. U.S. 30-year bond yields rose from almost the lowest level in a month as Greece and Italy took steps to form new governments and address budget and sovereign-debt problems.

In Greece, a unity government led by Lucas Papademos was sworn in yesterday with a mandate to implement budget measures and decisions related to a 130 billion-euro bailout agreed on Oct. 26. Elections may take place on Feb. 19.

The moves in some European economies to resolve their fiscal imbalances have not eased concerns among Asia-Pacific officials or economists.

Concern on Growth

Russian President Dmitry Medvedev said ahead of a meeting yesterday with Australian Prime Minister Julia Gillard in Honolulu that they planned to discuss the global economic crisis, which is “what all countries are worried about.” Leaders will work to ensure “there is solid growth in the region,” Gillard said.

“Europe’s problem may not be solved within 12 months,” Fan Gang, a former academic adviser to the People’s Bank of China, said in a panel discussion yesterday. “The euro zone is 17 countries. After Greece it could be Italy, after Italy it could be Portugal.”

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. European Central Bank policy makers said the bank can’t do much more to stem the region’s debt crisis, suggesting they are reluctant to ramp up bond purchases to lower Italy’s borrowing costs.

Finance officials at the APEC forum, 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. China reported this week that its shipments abroad rose the least in almost two years in October, while Hong Kong’s gross domestic product figures showed the economy barely grew last quarter from the previous three months.

Australia and Indonesia have cut interest rates this month, while the Philippines last month announced a fiscal stimulus package to spur the economy. Bank Indonesia’s rate cut of half a percentage point was the biggest reduction since March 2009.

“It’s going to take a long, long time to resolve the European crisis,” said Hsu Kuo-An, an economist at Taipei-based Capital Securities Corp. “The global economy will continue to slow down and it may even sink into a recession. Asian economies and Asian exporters are going to suffer.”

--With assistance from Margaret Talev, Julianna Goldman, Aki Ito, Andrew Mayeda and Ilya Arkhipov in Honolulu, and Chinmei Sung in Taipei. Editors: Joe Sobczyk, Peter Hirschberg

To contact the reporters on this story: Shamim Adam in Honolulu at sadam2@bloomberg.net; Michael Forsythe in Honolulu at mforsythe@bloomberg.net

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


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