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Reinfeldt: danger not over for the euro

TT/The Local/pvs · 27 Oct 2011, 15:34

Published: 27 Oct 2011 11:05 GMT+02:00
Updated: 27 Oct 2011 15:34 GMT+02:00

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"There is a lot left to do," Reinfeldt said.

After extended negotiations that ended only 4am on Thursday morning the group of tired leaders from the eurozone countries announced that they had a deal.

French President Nicolas Sarkozy was first out to inform that the banks had agreed to a 50 percent debt reduction for Greece.

Sarkozy acknowledged that all details are not in place yet, a sentiment shared by his Swedish counterpart.

One of the issues Reinfeldt argued, which remained to be resolved is how the eurozone countries would go about boosting the war chest of crisis fund to €1,000 billion.

"Some steps have been taken and there are grounds for cautious optimism, but one must also note that there is much left to do," Fredrik Reinfeldt argued at a press conference in Stockholm.

He pointed out that the final document of the euro summit contained clear challenges to the countries affected by debt that they have a responsibility to clean up their economies.

The document furthermore includes projections on strengthening the emergency fund, the goal of reducing the Greek debt by 2020 and the recapitalization of banks.

Sweden's finance minister Anders Borg expressed "cautious optimism" over the deal while pointing out the demands on Swedish banks to improve capitalization.

"For the Swedish banks this means that they have such strong profitability, so that if they retain profits for several quarters they are at that level," Borg said.

Borg also commented on the planned strengthening of the rescue fund EFSF.

"This is a very powerful upgrade of EFSF. It is clear that there it is sufficient to go far," he said.

The settlement was earlier described as a "positive step forward" by Swedish economists.

Robert Bergqvist, chief economist at Swedish bank SEB is among those hailing the announcement early of the deal early Thursday morning after a tough night of negotiations.

"It's a step forward, but the content is not really surprising," he told the TT news agency, and is backed by other analysts.

At the end of overnight negotiations it emerged that the banks agreed to write down Greece's debt by half, and the emergency European Financial Stability Facility (EFSF) is to be strengthened up from the current €440 billion to 1000 billion.

At the same time Bergqvist warned of the effects of how quickly the new, stricter capital adequacy requirements for banks should be implemented.

"The schedule is a little too tough and could pose a threat to growth, which should be avoided," he said, although stressed that he understood the objectives.

Bergqvist underlined that it is now up to EU ocuntries to restore confidence in the market by establishing credibility in the decisions taken.

"If the politicians change the rules along the way investors will think again over whether they should lend to heavily indebted countries," he said.

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The SEB economist concluded that there remained a number of problems for the EU countries to tackle.

"I am afraid that this we stand not at the end but at the beginning of a long and difficult process."

That euro area countries would agree on rescue package was expected and is positive, according to Swedbank's chief economist Cecilia Hermansson.

"But then there are many details that remain. A sufficient number of banks have to want to participate in this initiative and there are some details to work out," she said.

"This also applies to the support fund, including how to use the insurance component in order to increase their leverage in the fund and how to get funding from, for example, China and elsewhere."

The market's immediate reaction, as reflected in the Asian stock exchanges leading indices, was also no big leap of joy, but the indices did climb upwards.

TT/The Local/pvs (news@thelocal.se)

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Your comments about this article

09:06 October 27, 2011 by zircon
For State Finance, actually historical accountancy, doesn't do memory system.
09:26 October 27, 2011 by the fonz
Anybody who thinks this is the solution to this mess is gravely mistaken. These heavily indebted countries simply cannt produce enough to pay their way in the Euro. When they had their own currencies, they would fluctuate to aid the real value of their economies - that particular release valve is closed and the debt bubble keeps on growing and growing. Like everything in life - when the pressure gets too high - something has to give. And it will.

RIP Euro.
12:16 October 27, 2011 by Svensksmith
You can always trust a banker.
14:10 October 27, 2011 by skogsbo
each Euro nation has slightly different problems, so spend too much, other have too low taxes, some are just corrupt with people dodgying tax, unemployment or no production. A blanket solution won't work, each country needs to get grip and be responsible for itself, the safety blanket of the Euro will fall away soon if there don't. Northern Europe will survive, but the Latin countries, Ireland and Greece will turn into instant 3rd world nations.

Bankers aren't the problem, here corrupt/ tax dodging business men and lying / incompetant politicians when they fudged euro entry are cheifly responsible. Most of the problems were visible 5 years ago, they just take time to manifest themselve to the point where they can't be glossed over anymore.
14:49 October 27, 2011 by GLO
This is a planned failure, remember this time! Nothing has changed they will continue ......Ineptocracy (in-ep-toc'-ra-cy) - a system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers
17:47 October 27, 2011 by Acero
Such valid points by the fonz (a name everyone loves) and skogsbo, but with some lines of pure stupidity.

"..but the Latin countries, Ireland and Greece will turn into instant 3rd world nations."

Greece has never been anythin BUT a 2nd world nation at the very best of times. Ireland, in a way is the cousin to Iceland...lots of good points but wont ever really (bless them) be a REAL economy.

It comes down to what the fonz said about the release valve of a currency defltion. Its what a country needs..and without it there will always be papering over of cracks. Italy, Ireland, Germany and belgium are all very different countries....but are all being told to speak the same language. Not gonna work in the longer term sadly but it was nice not changing money there for a while
05:59 October 30, 2011 by Ron Pavellas
Perhaps my eyes glazed over at critical places, but the effect on Sweden seems clear as mud. Having read other reports I know what others here know: the deal doesn't address the underlying problem. It's a "kick-the-can" ploy again. Where does the €1,000 billion fund come from? Government promises? Will Sweden throw money at this? It'll disappear. We wisely (or inadvertently) voted to stay out of the EMU, but will we be dragged in anyway just by being connected commercially with EMU members? Will an economist (not a politician) please explain?
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