Thread: Our fate:G7 finance ministers to meet on US rating downgrade

G7 finance ministers to meet on US rating downgrade

Reuters / New York/ Rome August 6, 2011, 15:03 IST

The United States lost its top-tier AAA credit rating to AA+ from Standard & Poor's on Friday, hours after investors alarmed by the Eurozone debt crisis forced Italy to speed up an austerity drive.

In a sign of how concerned world leaders are about a slide in stocks that wiped about $2.5 trillion off global markets this week, Italian Prime Minister Silvio Berlusconi said finance ministers from the Group of Seven (G7) industrialised nations would meet in "just a few days" to seek a common plan of action.

Worries the Eurozone debt crisis was spreading and the US was slipping into recession have driven the rout in financial markets. Better-than-expected jobs growth in July helped support Wall Street on Friday but stocks slipped back into the red in late trading.

S&P said political gridlock in Washington was part of the reason behind the cut, saying politics was preventing the United States from addressing its deficit and debt problems.

While the impact of the rating cut on financial markets when they reopen on Monday may be modest because the decision was expected, the shift may have a major long-term impact for the US standing in the world, the dollar's status, and the global financial system.

"The global system must now adjust to the many implications and uncertainties of the once-unthinkable loss of America's AAA," Mohamed El-Erian, co-chief investment officer at Pacific Investment Management, which oversees $1.2 trillion in assets, told Reuters.

In Europe, Italy buckled to world pressure by pledging to bring forward cuts to balance the budget in 2013 in return for European Central Bank help with funding.

After a frantic round of telephone diplomacy, Berlusconi said his government would bring forward cuts to balance the Italian budget in 2013, a year ahead of schedule, and rush through welfare and labour market reforms.

"We consider it appropriate to introduce an acceleration of the measures which we introduced recently in the fiscal planning law to give us the possibility of reaching our objective of balancing the budget early, by 2013 instead of 2014," Berlusconi told a news conference after a day of calls with world leaders including German Chancellor Angela Merkel and US Treasury Secretary Tim Geithner.

Sources close to the matter told Reuters the ECB had demanded such measures in exchange for buying bonds to ease the pressure on Italy, which has come under market attack.

Berlusconi said the G7 finance ministers meeting could also prepare the ground for a meeting of heads of state.

Late in the day, the White House said President Barack Obama had spoken separately with Merkel and French President Nicolas EuroSarkozy about the Eurozone crisis but offered no details.

The ECB had no immediate reaction to Italy's announcement but a European Commission spokesman said the measures responded to assessments set out earlier in the day by EU Economic and Monetary Affairs Commissioner Olli Rehn and "go in the right direction."

Investors have been unimpressed by a 48 billion euro austerity package passed by Berlusconi's government, partly because most of the measures were delayed until after elections scheduled for 2013, for clear political reasons.

The crisis was receiving attention at the highest levels as leaders of Germany, France and Spain conferred by telephone during the day.

Discord among EU policymakers over how to stop a disastrous spread of the sovereign debt crisis to Italy and Spain, the euro zone's third and fourth biggest economies, has frustrated investors.

The European Central Bank disappointed markets by buying Irish and Portuguese bonds but not government paper in Italy and Spain where bond yields have blown out this week on fears they may need bailing out.

That now appears to have been a gambit to force Italy to act.

"In principle it is right to say that the ECB could start buying Spanish and Italian bonds if they made an extra effort with fiscal and structural reforms," a senior Eurozone official told Reuters.

Bank of Spain governor Jose Manuel Gonazalez-Paramo, a member of the ECB's governing council, said he expected Spain to announce further measures on Aug. 19 to ensure it meets its budget austerity targets.

Earlier in the day, China and Japan called for coordinated action to avert a new worldwide crisis sourced to Europe and the United States, as did Rehn.

"International policy coordination through the G7 and G20 is of critical importance," he told a news conference, having broken off his vacation and returned to Brussels.

Britain called for a "concerted international effort" to show governments would work together to avert a financial crisis and Brazil also urged unity, saying the world economy was "in a situation of stress."

Source: http://www.business-standard.com/india/ ... /143548/on

related

AP Source: G-7 to Discuss Central Bank Action
By GABRIELE STEINHAUSER AP Business Writer
BRUSSELS August 6, 2011 (AP)

"We'll be carefully watching the evolution of what might happen on Monday," Baroin told France's RTL radio, without providing details on the contacts. The G-7 members are Britain, Canada, France, Germany, Italy, Japan and the U.S.

Financial officials from the Group of Seven industrialized nations will discuss how to coordinate action between their countries' central banks, a person familiar with the matter said Saturday, following several days of market panic and a downgrade of the U.S. credit rating.

The person spoke on condition of anonymity because the level and timing of the contacts had yet to be confirmed.

French Finance Minister Francois Baroin, whose country currently holds the G-7 presidency, said he had been in close contact with his G-7 counterparts "throughout the previous days and also this very morning."

"We'll be carefully watching the evolution of what might happen on Monday," Baroin told France's RTL radio, without providing details on the contacts. The G-7 members are Britain, Canada, France, Germany, Italy, Japan and the U.S.

Standard & Poor's downgrade of the U.S. credit rating Friday night added to growing fears over debt levels and economic growth in the world's biggest economy and in large European nations, like Italy and Spain.

The European Central Bank has so far been reluctant to intervene in the Italian and Spanish debt markets in an attempt to stabilize plummeting bond prices, as it has previously done for Greece, Ireland and Portugal, the three eurozone countries that have already been bailed out.

But Luc Coene, the head of Belgian's central bank and a member of the ECB's decision making board, said Friday that the ECB may be prepared to help Italy and Spain once the two countries have taken more concrete steps to get their public finances under control.

Many investors have also been calling on the U.S. Federal Reserve to start pumping money into the U.S. economy again to help underpin the slowing economic recovery, as it has done through two large-scale bond buying programs since the 2007 financial crisis.

Italian Premier Silvio Berlusconi and EU Monetary Affairs Commissioner Olli Rehn on Friday called for coordination between G-7 countries, saying the crisis has to be tackled on a global level.

Berlusconi also announced that his country — burdened with a debt that stands around 120 percent of economic output amid lackluster growth — would speed up cuts to balance its budget by 2013 and take other steps to boost growth.

The announcement — which follow calls for more action from the EU and the ECB — came after one of the worst weeks in global financial markets since the collapse of U.S. investment bank Lehman Brothers in 2008.

The downgrade of the U.S. credit rating is also bad for Europe, whose economy is closely linked to the U.S. and whose weak members need strong demand for their goods to help them grow through exports.

Stabilizing Italy and Spain is set to be the biggest test for the 17-country eurozone, since their large economies are likely too big to support with full-blown bailouts.

Because of that, eurozone leaders last month decided to give their bailout fund new pre-emptive powers, such as the ability to buy distressed government bonds on the open market, extend short-term credit lines or help re-capitalize struggling banks.

However, those new powers have not been implemented yet — a process that may take until early September unless national parliaments are called back from their summer recess. Analysts also warn that at the moment, the bailout fund is too small to successfully use its new tools.

Of the euro440 billion ($623 billion) initially committed to the so-called European Financial Stability Facility, less than euro300 billion ($425 billion) will be left once the two Greek rescue packages and the bailouts for Ireland and Portugal have been paid out.

Mansoor Mohi-uddin, a managing director at UBS, warned that besides undermining investor confidence in the U.S., S&P's downgrade may herald similar action from rating agencies on other top-rated countries.

"The sovereign ratings of other AAA rated countries like the U.K. and France are likely to come under question," Mohi-uddin said in a note.

———

Jenny Barchfield in Paris contributed to this story.

Source: http://abcnews.go.com/Business/wireStory?id=14245351

Why would they have a meeting about the USA when all their countries are in hock up to their asses as well

Because the world is losing its Sugar Daddy. They have finally killed the goose that laid the golden eggs. China wanted all the manufacturing, to keep its people happy. India wants all the white collar knowlege work type jobs. The basket cases want big ticket foreign aid. Latin America wants to move in. But now the cupboard is bare.

related

USA DOWNGRADED: FIRST CREDIT RATING CUT IN NATION'S HISTORY...
http://www.washingtonpost.com/business/ ... print.html

United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative
DETAILS [.PDF FILE]...
http://www.standardandpoors.com/servlet ... lue3=UTF-8

Originally Posted by BetsyRoss

Because the world is losing its Sugar Daddy. They have finally killed the goose that laid the golden eggs. China wanted all the manufacturing, to keep its people happy. India wants all the white collar knowlege work type jobs. The basket cases want big ticket foreign aid. Latin America wants to move in. But now the cupboard is bare.

I couldn't have put it any better then that

Thank you and Sunday night (Monday morning for Asia) will tell a tale, as their markets open.