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Investors bail out after Germany says no silver bullet for Europe’s debt mess
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The Toronto Star-
Les Whittington
OTTAWA—Fears of a financial meltdown in Europe reignited Monday after Germany warned there’s no silver bullet that will quickly fix the continent’s debt crisis.
The comment heard around the globe came just as world leaders were stepping up their complaints that inaction by European financial authorities risked setting off another widespread economic downturn.
“This is the world’s most immediate and pressing problem,” Finance Minister Jim Flaherty said in a blunt speech in Ireland. “It threatens Europe, and it is threatening to bring the world to the verge of another recession.”
Flaherty was fresh from a meeting in Paris on the weekend where G20 finance ministers had appeared encouraged that European Union leaders would make progress within the next week on a comprehensive strategy to shore up their banks and head off more market turmoil.
But Germany quickly sought to dispel expectations of a miracle fix, saying the G20 ministers were dreaming if they expected major decisions at the European Union summit, which is being held Oct. 23.
A spokesperson for German Chancellor Angela Merkel said, “The chancellor has pointed out that the dreams building up that this package will mean everything will be solved and over by Monday cannot be fulfilled."
But Merkel’s office said Germany is working intensely to see if debt-burdened Greece can receive another bailout package and to prepare a wider plan to protect financial institutions in Europe.
The comment from Merkel punctured the wave of optimism among investors that last week helped stock markets regain some of the ground lost in recent weeks.
With resource stocks swooning, the S&P/TSX composite index gave back a big chunk of last week’s strong advance, losing 158.7 points to 11,923.04.
The Canadian dollar fell 1.12 cents (U.S.) to 97.84 cents (U.S.) as the greenback dollar strengthened from a shift of money into safe U.S. government bonds.
But U.S. stock markets also tumbled following a solid gain last week, with the Dow Jones industrials dropping 247.49 points to 11,397.
Despite the crisis atmosphere surrounding the continent’s financial markets, coordinated action is still hampered by internal disagreements within the EU about how to rebuild European banks’ capital, how to manage a controlled debt default by Greece and how to implement any collective strategy to protect and strengthen Europe’s financial institutions.
In Monday’s speech, Flaherty issued his strongest warning yet about the risks of inaction by European leaders.
“If this crisis is left unaddressed, it will eventually become too big for Europe to solve. This is why immediate action is needed. Delays will only make necessary choices more difficult, and this crisis more costly,” he told the Ireland Canada Business Association.
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