ECONOMY

In Brief

Vatican economists point to need for new treaty Vatican economists says the Greek crisis and the resulting market turmoil threatening to engulf the rest of southern Europe point to the need for a «new treaty» to protect the 11-year-old euro. The Vatican yesterday hosted a special plenary session titled «Crisis in a Global Economy: Replanning the Journey,» featuring professors from the Pontifical Academy of Social Sciences founded Pope John Paul II. The economists «addressed the recent package of relief measures, as well as the possibility that new European structures might be needed, not excluding the possibility of a new treaty to better secure the foundations of the common currency,» according to a Vatican statement. Eurozone ministers on May 2 agreed to the three-year bailout package for Greece to prevent a default and stop the crisis from spreading to 16-nation euro region. Under the financial lifeline, Greece will be forced to cut its budget deficit below the EU limit of 3 percent of gross domestic product by the end of 2014 from 13.6 percent in 2009. (Bloomberg) Protests turn off investors Nobel Prize-winning economist Edmund Phelps said public protests in Greece are turning investors against the nation, and their «uneasiness» is spreading to other European countries. «The demonstrations in Athens are another factor that must be scaring off, turning the mood of credit markets even more against Athens,» he said in an interview on Bloomberg Television yesterday. «Interest rates are sky-high in Greece. It’s going to have further business contraction, it’s just in a desperate condition.» Greek air traffic controllers, teachers and shopkeepers walked off their jobs yesterday to challenge cuts imposed on wages and pensions. European Central Bank council member Axel Weber said that Greece’s fiscal crisis is threatening «grave contagion effects» in the euro area, justifying Germany’s contribution to a 110-billion-euro ($142 billion) aid package. «There’s an uneasiness that’s undoubtedly spreading to Spain and Portugal and who knows where next,» Phelps said. «Each potential lender is afraid to lend if he thinks other lenders are not going to be lending too, because he may be out in the cold.» (Bloomberg) Exposure Bulgaria, Romania and Serbia may suffer as a result of the crisis in Greece, due to high levels of Greek banking exposure in these countries, the European Bank for Reconstruction and Development said yesterday. «There is a potential risk in countries in which Greek banks play a special role – Bulgaria, Romania, Serbia,» EBRD President Thomas Mirow told a news briefing. «Up to now we haven’t seen any major effect; Greek banking subsidiaries have behaved well.» Kosovo has not yet achieved membership of the EBRD, Mirow added. «Two-thirds of our shareholders need to approve membership, that is not yet the situation.» The EBRD, set up after the Cold War to help former communist countries in eastern Europe make the transition to market economies, invests in 29 countries, mainly in the private sector. It forecasts growth in the region of 3.3 percent this year, against a 6.1 percent contraction in 2009. (Reuters) Deficit target Spain’s budget deficit will be larger than Greece’s shortfall this year, the European Commission forecast, signaling that the Madrid government’s growth forecasts may be too optimistic. Spain’s budget deficit will decline to 9.8 percent of gross domestic product this year, from 11.2 percent in 2009, the European Commission said yesterday. The shortfall in Greece, which is set to receive a 110-billion-euro EU-led bailout, is projected to fall to 9.3 percent from 13.6 percent last year, the Commission said in its semi-annual forecasts. (Bloomberg) IMF meeting The International Monetary Fund’s executive board will meet on Sunday to act on Greece’s request for a $40 billion standby arrangement, a fund spokesman said on Tuesday. The European Union and IMF have agreed on a bailout plan for the debt-strapped country, but the IMF’s board must still approve its portion of it. The IMF’s chief negotiator on Greece, Poul Thomsen, said last Sunday that it was fast-tracking financial aid for Greece and expected to release funds to it «very soon.» (Reuters)