By Shamim Adam and Cheyenne Hopkins
Nov. 11 (Bloomberg) -- Finance chiefs from
Asia-Pacific nations said European policy makers must step up efforts to
resolve their debt crisis, signaling reluctance for now to embrace
large-scale financing help.
The euro region’s rescue plan “needs to be put in
place with the speed that markets require and with the force necessary
to restore confidence,” U.S. Treasury Secretary Timothy F. Geithner said
after an Asia-Pacific Economic Cooperation meeting. Australian
Treasurer Wayne Swan urged Europeans to “get your act together,” while
his Canadian counterpart said Europe could solve its own problems given
the resources it has available.
The comments yesterday in Honolulu reflect
impatience at Europe’s failure to get to grips with a crisis Geithner
said is the “central challenge” to global growth. Italian bond yields
this week surpassed the 7 percent level that drove Greece, Ireland and
Portugal to seek bailouts as Europeans failed to bridge divisions over
creation of a permanent rescue fund.
“Outside pressure is to be expected and you want
to keep the European politicians’ feet to the fire because everyone
wants it to be over,” said Tim Condon, head of Asia research at ING
Groep NV in Singapore and a former World Bank economist. “There are
intense bouts of anxiety and visible loss of wealth when you have a 4
percent correction in stock markets. No one likes that.”
Stock Market
The MSCI Asia Pacific Index of stocks was down
2.7 percent for the week as of 2:52 p.m. in Tokyo, and has retreated 16
percent since late July as the euro-region’s woes undermined demand for
Asian exports. A government report yesterday showed China’s shipments
abroad rose the least in almost two years in October.
“These issues have been on the agenda and they
haven’t just snuck up on anyone,” Swan told reporters in Honolulu,
noting that the euro area has been discussing its sovereign debt
problems for about 18 months.
“We’ve got to keep that pressure up
because the stakes are really high.”
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. Finance officials
at APEC, 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.
The world is paying “a very high price” for
Europe’s failures and its policy makers don’t have a “firm grip” on the
challenges they face, Swan said. He was speaking a day before Italy’s
senate considers a package of debt-reduction measures that includes
waiting until 2026 to raise the retirement age by 24 months.
Currency Pledge
APEC finance ministers today pledged to move
“more rapidly” toward market-determined exchange-rate systems and to
increase currency flexibility. The officials from the 21-member grouping
also said they will avoid persistent exchange-rate misalignments and
refrain from competitive devaluations.
“We reiterate that excess volatility and
disorderly movements in exchange rates have adverse implications for
economic and financial stability,” the ministers said in a statement
after their meeting.
Geithner encouraged China to allow its currency
to strengthen. President Barack Obama’s administration contends that
China’s yuan is undervalued. Obama has pressed Chinese leaders to take
steps to boost domestic consumption to reduce lopsided global trade and
investment flows.
Geithner on China
“This process of rebalancing will be aided by
exchange- rate policies in China and other Asian economies that allow
their currencies to adjust in response to market forces,” Geithner said.
“China, in particular, must continue to allow its currency to
strengthen, and China has acknowledged the importance of faster
exchange-rate adjustment.”
The record strength in the Japanese yen is
threatening the nation’s recovery from the March 11 earthquake, Vice
Finance Minister Fumihiko Igarashi told APEC finance chiefs today. Japan
aims to turn the strong yen to its benefit, Igarashi said.
Asian policy makers have shifted their focus to
shielding growth, rather than stemming inflation, as Europe’s debt woes
and a struggling U.S. economy increase the risk of another global
recession. Australia and Indonesia have cut interest rates this month,
while the Philippines announced last month a fiscal stimulus package to
spur the economy.
“As the United States continues to work through
the problems that caused our crisis and Europe confronts a period of
slower growth, Asian economies will need to do more to stimulate
domestic demand growth -- both so they are less vulnerable to slowdowns,
such as the situation in Europe, and so they can continue to contribute
to global growth,” Geithner said at a news conference today.
Philippines’s Take
Europe isn’t dealing with its financial crisis
“forcefully,” Philippines Finance Secretary Cesar Purisima said
separately in Honolulu today. Euro zone leaders need to act quickly to
“overwhelm” markets, Canadian Finance Minister Jim Flaherty said in an
interview at the APEC meeting.
European Central Bank policy makers said the bank
can’t do much more to stem the region’s sovereign debt crisis,
suggesting they are reluctant to ramp up bond purchases to lower Italy’s
borrowing costs. The central bank, which cut interest rates last week,
lends banks as much cash as they need and has announced a second round
of covered-bond purchases.
Concern that the region’s debt crisis may cause
the currency union to fracture escalated even after European leaders
agreed last month to boost the firepower of the rescue fund for indebted
countries. Italian 10-year bond yields surged to a euro-era high of
7.46 percent on Nov. 9 as investors questioned the ability of its
lawmakers to restrain the euro-region’s second-largest debt load after
Greece.
2008 Shadow
“There’s always the danger in these situations,
as we learned back in 2008, that markets and events can get ahead of
government authorities,” Flaherty said. The IMF may need to commit more
funds to prevent global credit markets from seizing up if Europe’s debt
crisis continues to deteriorate, he said.
While APEC officials are in favor of more funding
for the IMF, it was less clear if any of those resources should be used
for Europe, Flaherty said.
Swan said that he and South African Finance
Minister Pravin Gordhan had presented a paper to the Group of 20 finance
officials before an October meeting calling for an increase in
resources for the IMF. The Washington-based lender should only help
Europe if the region takes “necessary actions to help itself,” Swan
said.
Any IMF loans to the region should be accompanied
by “appropriate conditions” to ensure that necessary reforms are taken
and there can be no “special deal” for international financing for
Europe, Swan said.
--With assistance from Aki Ito and Andrew Mayeda in Honolulu. Editors: Chris Anstey, Patrick Harrington
To contact the reporter on this story: Shamim Adam in Honolulu at sadam2@bloomberg.net
To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net
