European debt crisis goes out of control
Baku, August 5 (AZERTAC). The European Central Bank offered only limited help and told Italy and Spain -- now at the eye of the storm -- to take tougher austerity measures before it will step in to buy their bonds.
The comments from China and Japan, Washington's two biggest foreign creditors, highlighted fear that Europe's debt crisis could spin out of control and the U.S. economy may go into reverse.
European markets hit a 14-month low in early trading, following sharp falls in Asia and on Wall Street.
French President Nicolas Sarkozy was to discuss the situation on euro zone financial markets with German Chancellor Angela Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero in separate telephone calls on Friday, his office said.
Non-euro member Britain said it was in touch with euro zone leaders and the Group of Seven leading industrial powers on the market turmoil.
"Recent developments mainly reflect an increasing skepticism about the systemic capacity of the euro area to respond to the ongoing crisis," Greek Prime Minister George Papandreou wrote in a letter to European Commission President Jose Manuel Barroso, echoing an assessment from Barroso himself earlier this week.
The ECB reactivated its dormant bond-buying program on Thursday in an attempt to hose down the euro zone`s deepening sovereign debt crisis, but only bought Portuguese and Irish debt. Influential members of the ECB opposed even that.
Central bank sources told Reuters that four out of 23 ECB governing council members, including powerful German Bundesbank chief Jens Weidmann, voted against the decision to resume any bond purchases.
That widened a damaging rift that first appeared last year when Weidmann`s predecessor, Axel Weber, publicly dissociated himself from the policy. This time, ECB chief economist Juergen Stark and the Dutch and Luxembourg central bankers also dissented, the sources said.
Governing council member Luc Coene of Belgium said the policy-setting body had not vetoed buying Italian and Spanish bonds but both countries would have to take further action to earn central bank support.
"I certainly think the central bank is ready to take significant measures to help the situation," the Belgian central bank governor said in a radio interview. "But first countries need to take measures.
The Bank of Spain also said that to overcome the debt crisis, "there must also be a vigorous response in national economic policy.
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