World presses Europe on debt crisis

Sep 24, 2011, 10:07 a.m.
European Central Bank (ECB) Governor Jean-Claude Trichet (centre L) and U.S. Treasury Secretary Timothy Geithner (centre R) smile as they gather for a group photo with other International Monetary Fund (IMF) governors, during the World Bank/IMF Annual Meetings in Washington September 24, 2011. REUTERS/Jonathan Ernst

A senior lawmaker from German Chancellor Angela Merkel's conservatives said the euro zone's permanent rescue mechanism should be introduced sooner than mid-2013 to beef up private creditors' response to the Greek debt crisis.

Geithner and Fed Chairman Ben Bernanke met on Friday with top officials from the ECB and other national central banks from Europe, in part to discuss international financial regulatory reform.

In a reminder of how sensitive some European officials are to the ECB taking a more active role in the crisis, a board member of Germany's central bank, the Bundesbank, suggested the time was coming for the ECB to stop buying government bonds.

"I think the time is coming for this to stop," said Joachim Nagel, adding that the ECB's bond buying was only supposed to be a temporary measure until the euro zone's bailout fund is beefed up with powers to buy bonds and lend to governments.

Another top ECB official sought to quash growing expectations that Greece will eventually default.

ECB Governing Council member Athanasios Orphanides said the idea of a Greek default was "surreal" but warned that it could occur as the result of a "political accident."

Greece is in tense talks with the IMF and European authorities to secure a new 8 billion-euro installment of its rescue package.

In return, Athens has pledged deep austerity measures but negotiators are frustrated at what they say is Greece's slow reform pace. October's loan payment, however, is still widely expected to be made. The next installment is due in December.

Germany, as the strongest economy in Europe, plays a central role in any effort to curb a debt crisis but public opinion there has turned against further big bailouts for fellow euro zone countries.

Finance Minister Wolfgang Schaeuble said on Saturday he will meet his Greek counterpart, Evangelos Venizelos, while in Washington for the IMF meetings.

"We are permanently in contact and talk a lot," Schaeuble said, a day after Merkel sought to dampen speculation about the chances of a Greek default by saying it was not an option for her.

"The damage would be impossible to predict," Merkel warned members of her political party in Germany.

Greece's Venizelos was quoted by two newspapers on Friday as saying an orderly default with a 50 percent haircut for bondholders was one way to resolve the heavily indebted euro zone nation's cash crunch.

Speaking to Reuters on Saturday, Venizelos said Greece would stick to its austerity commitments.

(Additional reporting by IMF reporting team in Washington, Sakari Suoninen in Frankfurt, Writing by Glenn Somerville and William Schomberg; Editing by Andrea Ricci)

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