Euro pact faces UK hurdle, ebbing market faith
Monday, December 12, 2011
LONDON (AP) — Doubts resurfaced Monday over Europe’s ability to solve its debt crisis and rescue the imperiled euro, as investors worried that plans for closer fiscal unity will bring little immediate relief and Britain warned the deal could face new political hurdles.
British Prime Minister David Cameron was the only leader among the European Union’s 27 members to refuse last week to join a plan under which nations submit their budgets for central EU review and limit the deficits they can run.
As the rift between Britain, which has its own currency, and the 17 euro nations fed uncertainty about the deal’s implementation, ratings agencies Moody’s and Fitch warned the plan would make little difference.
The summit produced “few new measures” and Europe remains in a “critical and volatile stage,” Moody’s said in a published report. It noted that the pact does not address Europe’s immediate problem: the crushing debt loads of some nations and their rising borrowing costs.
The agreement “kicks off a process that has a chance of solving the next crisis, not this one,” warned Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.
Stocks plunged and the euro hit a 10-week low against the dollar as market confidence in the plan and Europe’s ability to end the crisis ebbed.
On Wall Street, the Dow Jones industrial average dove as many as 243 points before closing down 163, while European stocks also closed sharply lower. Yields on Italian bonds rose to 6.76 percent, closing in on the 7 percent level that forced fellow eurozone nations Greece, Ireland and Portugal to take bailouts.
Cameron defended his rejection in the House of Commons, telling U.K. lawmakers the fiscal pact that envisions using the EU’s executive arm as a budget watchdog could face even more political hurdles.
“The choice was a treaty without proper safeguards or no treaty, and the right answer was no treaty. It was not an easy thing to do, but it was the right thing to do,” Cameron said.
The British leader was greeted with cheers from his own euroskeptic Conservatives but jeers from opposition lawmakers, who worry Britain will find itself sidelined from key European decisions.
In Washington, U.S. Secretary of State Hillary Clinton backed Britain’s position, telling reporters “the role that the U.K. has played in Europe will continue.”
But French President Nicolas Sarkozy blasted Britain for dividing the continent. “There are clearly two Europes,” Sarkozy was quoted as telling Le Monde newspaper.
In Italy, one of the continent’s most troubled economies, workers angry about government austerity reforms went on strike and held nationwide rallies.
Strikes idled some Fiat auto plants and forced Milan’s famed La Scala opera house to cancel a performance. It was the first of days of union walkouts and demonstrations against spending cuts and tax hikes that Italy’s new technocratic government is seeking to restore investor confidence.
Unions say Italy’s austerity measures are hitting too hard on pensioners and workers and not hard enough on the wealthy. “Fairness, fairness!” shouted workers marching in Florence.
Twenty-three European countries — including Italy — have said they are in favor of the fiscal pact announced Friday in Brussels, while three more say they are open to the idea.
Under the deal, a central European authority would oversee their future budgets and impose tougher spending controls. The participants would also agree to automatic penalties if countries spend too much.
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