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THE WEEKLY WORLD EDITION OF The Daily Telegraph AND The Sunday Telegraph

August 10 - 16 2011 No. 1046

The Telegraph



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By Bruno Waterfield, James Hall and Richard Blackden THE world’s most powerful countries will hold an emergency summit to discuss how to stop another global recession, it was announced last Friday, as President Barack Obama appealed for calm.

Finance ministers from the G7 group, which includes the United States, Britain, Germany and France, are to meet amid growing fears that eurozone countries are failing to stop the “contagion” of the debt crisis.

Details of the move emerged as stock markets across Europe continued to plunge last week. The FTSE 100 suffered a 2.7 per cent fall last Friday alone, bringing the total wiped off the value of shares last week to £149 billion.

David Cameron, the Prime Minister, interrupted his holiday in Tuscany to hold discussions with Angela Merkel, the German Chancellor, though both he and George Osborne, the Chancellor, insisted that there was no need for either to cut their holidays.

The European Central Bank (ECB) was poised last Friday night to start buying up billions in Italian debt after Silvio Berlusconi, the Italian prime minister, promised to enshrine spending limits in the constitution and balance his budget by 2013. Mr Berlusconi also announced that the leaders of the G7 group would hold an emergency summit “within weeks”.

Italy has £1.4 trillion of sovereign bonds outstanding and the prospect of the ECB taking on the debt has triggered deep divisions between eurozone governments.

When markets crashed last


Silvio Berlusconi, Italy’s prime minister, says his country has sound ‘economic fundamentals’

Friday, for the first time borrowing costs for Italy, the eurozone’s third-largest economy, went above Spain’s.

In America, better-thanexpected employment figures eased market fears as the Dow Jones rose after a volatile week of trading, at one point touching its lowest point since Dec 1 2008.

Mr Obama attempted to calm the situation, saying: “We are going to get through this. Things will get better.”

European leaders faced criticism for indecision as the escalating debt crisis threatened to become a fullblown economic crash.

Louise Cooper, an analyst at BGC Partners, said stock

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traders were “starting to feel the fear” as governments appeared powerless to halt a slide into a global crisis.

“The horrible reality is that those leaders in charge of our economy have no answers,” she said.

Last Friday, the President of the European Commission warned that eurozone countries were failing to stop the “contagion” of the debt crisis.

José Manuel Barroso called for an emergency strengthening of Europe’s bail-out mechanism. He said that he had “deep concerns” about the faltering Spanish and Italian economies.

In other developments: ŠThe Financial Services Authority, the City watchdog, asked British banks to reveal how much exposure they had to other European member states, including Belgium ŠTrading in the shares of Lloyds and Barclays had to be suspended because their values fell so much ŠBNY Mellon, one of the largest banks in America, said it would start charging some customers to deposit money as investors hoarded cash ŠSwitzerland and Japan were forced to cut interest rates to dampen demand for their currency from investors seeking a “safe haven”.

Mr Barroso’s letter to European Council members came a fortnight after European leaders were congratulating themselves for bringing the Greek economy back from the brink with a £96 billion bail-out.

He said the main reason for the market instability was the “undisciplined communication, complexity and incompleteness” of the Greek package. Investors were not convinced that member states had a grip on the crisis.

Mr Barroso said that he had “deep concerns” about Spain and Italy, as the cost of borrowing for both economies approached the 7 per cent level at which the eurozone had been forced to bail out Greece.

He called for the eurozone’s €440 billion bail-out fund to be expanded to safeguard the euro because existing mechanisms were failing to calm the stock markets.

“Markets remain to be convinced that we are taking the appropriate steps to resolve the crisis,” he said. “We are no longer managing a crisis just in the euro-area periphery. Euro-area financial stability must be safeguarded.

“These developments … reflect a growing scepticism among investors about the capacity of the euro-area to respond to the evolving crisis.”

Mr Berlusconi sought last Thursday to play down the scale of the crisis by insisting that his country had “sound economic fundamentals”.

“Our banks are liquid, they

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