Europe's finance ministers yesterday ruled out any fresh moves to stimulate the eurozone economy, despite forecasts that growth across the Continent is about to grind to a halt. The head of the Eurogroup, Jean-Claude Junker, said: "We don't see any room for manoeuvre in the euro area which could allow us to launch new fiscal stimulus packages."
The eurozone's finance ministers were meeting in Wroclaw, Poland, against a backdrop of intensifying market alarm over the future of the single currency. Mr Juncker also announced during the meeting that the Eurogroup's decision on whether to release the next €8bn (£7bn) tranche of bail-out funding for Greece will not be taken until the next meeting on 3 October. The funds will only be released if Athens demonstrates progress in bringing down its budget deficit.
Earlier in the day, the US Treasury Secretary, Timothy Geithner, who was attending the Eurogroup meeting as an observer, urged European politicians to avoid "loose talk" about dismantling the institutions of the euro, which have been alarming financial markets on both sides of the Atlantic. Mr Geithner also suggested that ministers should consider dramatically extending the lending power of the €440bn European Financial Stability Facility (EFSF), set up to assist eurozone governments that are shut out by the lending markets.
But comments from the Austrian finance minister, Maria Fekter, suggested that Mr Geithner's advice was not well received. She told reporters: "I found it peculiar that, even though the Americans have significantly worse fundamental data [on public debt] than the eurozone, they tell us what we should do."
Mr Junker was also dismissive of the Treasury Secretary's proposal, saying: "We are not discussing the expansion or increase of the EFSF with a non-member of the euro area." But that did not stop others urging bolder action from the sidelines. The Chancellor, George Osborne, speaking at a business conference in Manchester, urged European finance ministers "to send a clear signal that they truly recognise the gravity of the situation and that they are dealing with it".
Stock markets received a boost on Thursday, when the world's major central banks announced their intention to extend dollar loans to the global banking system. And despite the lack of substantive agreement in Poland, that trend continued yesterday. The FTSE 100 closed up 0.58 per cent at 5,368. The Dow Jones was up 0.39 per cent in afternoon trading. The value of the euro dropped to $1.3792, but was still up over the week. There were, however, drops in Italian banking shares, as fears spread of an imminent credit ratings downgrade.
On Wednesday, the President of the European Commission, Jose Manuel Barroso, said that the Commission would bring forward proposals for eurobonds to solve the crisis. But at a political rally for her party in Berlin yesterday, the German Chancellor, Angela Merkel, reiterated her opposition to such a scheme. "Eurobonds are out of the question for the Christian Democrats," she said, adding that "every country has to do its homework. Otherwise it cannot expect any help."
The parliaments of Spain and Luxembourg ratified an extension of powers for the EFSF this week, bringing the number of eurozone nations who have done so to five. The other nations who have ratified are Italy, France and Belgium. The German parliament will vote on the package on 29 September.