The Organization for Economic Cooperation and Development said on Monday that the euro crisis remained “a key risk to the world economy.” The research group, based in Paris, sharply cut its forecasts for wealthy Western countries and cautioned that growth in Europe could come to a standstill.
Hours earlier, Moody’s Investors Service issued its own bleak report on Europe’s sovereign debt crisis. Moody’s, a leading credit ratings agency, warned that the problems could lead multiple countries to default on their debts or leave the euro, which would threaten the credit standing of all 17 European Union countries that use the euro.
Despite the gloomy predictions, stock indexes rose sharply in Europe and Asia as well as on Wall Street, and the euro strengthened, on hopes that European leaders would step up efforts to resolve the crisis.
Finance ministers from the euro zone were to meet Tuesday in Brussels to try to agree on how to increase the firepower of their bailout fund. They also hope to sign off on an 8 billion euro ($10.7 billion) loan installment to prevent Greece from defaulting. A proposal for a Europe-wide solution to the crisis is expected before a meeting of European Union leaders on Dec. 9.
Already, though, the prime ministers of Finland and Luxembourg are voicing alarm over French-German plans to set strict new budget rules for countries that use the euro currency — something Berlin considers a precondition of further steps to save the euro zone.
Meanwhile, although the International Monetary Fund on Monday denied Italian media reports that it was negotiating a bailout loan to Italy, some experts predicted the I.M.F. would soon try to come to Italy’s rescue.
Concerns about the European crisis also hung over a meeting Monday at the White House between President Obama and three European leaders: José Manuel Barroso, the president of the European Commission; Catherine Ashton, the European foreign policy chief; and Herman Van Rompuy, the president of the European Council.
During a White House news briefing, the press secretary, Jay Carney, said that “our position is and has been that it’s critical for Europe to move with force and decisiveness now, particularly with new governments coming into place in Italy, Greece and Spain.”
In Brussels, European officials rejected suggestions that the euro was days away from breaking up, pointing out that countries had completed most of their bond issues, even if the respite would be only a matter of weeks before they had to return to the credit markets.
Belgium had to pay higher interest rates to borrow money in the markets on Monday, illustrating how the country’s failure to form a government had increased concerns about its ability to tackle its debts. The yield on 10-year bonds was 5.57 percent, compared with 4.37 percent in an auction last month.
Concerns are also mounting over Italy, whose borrowing costs continue to soar. In a bond auction Monday, Italy had to pay an interest rate of 7.2 percent to sell 12-year issues — a full 2.7 percentage points higher than the last time it auctioned 12-year bonds. Another Italian bond auction is set for Tuesday.
Over the weekend, Italy had signaled, along with Germany and France, that it was ready to agree on new rules to enforce budget discipline while encouraging more coordination of economic and fiscal policy among the 17 European Union members that use the euro.
On Monday the German Finance Ministry published comments from the finance minister, Wolfgang Schäuble, suggesting that this could be done by amending a protocol of the European Union treaty, though officials said this would still need approval by all 27 members.
An alternative, favored by some French policy makers, is to reach agreement among the 17 euro zone nations outside the framework of the European Union treaty. Some news reports have suggested an even smaller group might be involved.
Liz Alderman reported from Paris and Stephen Castle from Brussels. Steven Erlanger contributed reporting from Paris and Annie Lowrey and Brian Knowlton from Washington.
Article source: http://feeds.nytimes.com/click.phdo?i=a841359a9c3c80849e30d7c9d3a272a9
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