Monday, July 11, 2011

Top EU officals meet over Italy debt contagion fears

Top European Union officials will meet in Brussels on Monday morning to discuss the growing eurozone debt crisis amid fears that Italy could be the next country to be affected.

They will also "coordinate their positions" on the second Greek rescue package as Europe's debt crisis threatens to deteriorate further.

The meeting comes as the Financial Times reported that leaders are prepared to accept that Athens should default on some of its bonds. The newspaper said the move would be part of a new bail-out plan for Greece that would put the country’s overall debt levels on a sustainable footing. The plan could also include new concessions by Greece’s European lenders to reduce Athens’ debt, such as further lowering interest rates on bail-out loans and a broad-based bond buyback programme.

Italy is the region's third largest economy and after Greece has the second highest sovereign debt ratio in the eurozone relative to its overall ecomony.

Fears of eurozone debt contagion were stoked by dramatic falls in Italian stocks on Friday. Shares were dragged down by Italy's banks, which along with other European banks will learn the results of "stress tests" later this week. Shares in Unicredit Spa, Italy's biggest bank, fell almost 8pc on Friday.

Over the weekend Herman Van Rompuy, the President of the European Council, called the meeting, which is expected to be attended by Jean-Claude Juncker, chairman of the region's finance ministers, Jose Manuel Barroso, the European Commission President, and Olli Rehn, the economic and monetary affairs commissioner. Although the meeting will not be attended by heads of state, observers described the development as "significant". (read more)