AMSTERDAM -(Dow Jones)- The European Financial Stability Facility, or EFSF, is finding it difficult to raise capital due to political uncertainties in countries such as Italy and Greece, Dutch paper Financieele Dagblad reports Friday, citing EFSF Chief Executive Klaus Regling. The political uncertainties in these countries prevent the euro-zone bail-out fund from raising funds to scale up its current capital of EUR250 billion(US$340 billion) by four to five times, the newspaper cited Regling as saying. Instead, it is currently more realistic for the EFSF to target raising up to only three to four times its current capital.
Quick piece of corporate news. Barclays Bank has agreed to sell Barclays Capital's management buy-out business, Barclays Private Equity, to its management team, who are re-launching the business as Equistone Partners Europe. Equistone will continue to manage its existing three funds on behalf of its existing investors in those funds. Barclays remains an investor alongside those funds and the largest single investor in Equistone's investments to date. The value of the gross assets disposed of is expected to be approximately £45m. The transaction is not expected to have a material impact on Barclays earnings per share or capital ratios. Writing in the Financial Times today, respected economist Nouriel Roubini isn't too positive of Italy's chance of staying in the eurozone: "Italy may, like other periphery countries, need to exit the euro and go back to a national currency, thus triggering an effective break-up of the eurozone... Italy and other illiquid, but solvent, sovereigns need a 'big bazooka' to prevent a run on their public debt. The trouble is, however, that there is no credible lender of last resort in the eurozone." José Manuel Barroso, the president of the European Commission, has warned that the collapse of the eurozone would cause a crash that would instantly wipe out half of the value of Europe’s economy, plunging the continent into a depression as deep as the 1930's slump.
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The Treasury and Bank of England are making contingency plans for an "economic Armageddon" if the euro falls apart, business secretary Vince Cable said on Thursday as the European commission slashed its growth forecasts and predicted that the continent could be plunged back into recession next year.
With David Cameron warning that the moment of truth was approaching for the eurozone, ministers are resigned to a severe downgrade of UK growth and public finances when the Office for Budget Responsibility reports this month. Brussels officials said the outlook for the UK economy had deteriorated significantly throughout 2011 and its recovery was lagging rivals'.
The commission now expects the UK economy to expand just 0.7% this year, compared with a forecast of 1.7% in May. Growth for next year is forecast to be just 0.6%, a huge drop on the OBR spring forecast of 2.5 %. An increasingly impatient Cameron again urged the Germans to allow the European Central Bank (ECB) to "act now" and become lender of the last resort to save distressed euro-economies, seen by Britain as the only way to keep the euro from collapse and prevent a wider banking liquidity crisis.
The collapse of the eurozone would cause a crash that would instantly wipe out half of the value of Europe’s economy, plunging the continent into a depression as deep as the 1930s slump, the president of the European Commission has warned.
Mr Barroso said that if the euro area of the 17 member states or the wider 27-country EU broke apart the estimated initial cost would be up to 50 per cent of European gross domestic product.
The result of such an economic shock would be emergence of extremism and divisions within Europe, the former Portuguese prime minister told his German audience.
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“Just as the founding fathers had a vision of Europe after two devastating world wars, we must also now act with resilience and with vision towards a Europe that is strong but open,” he said. “Now is Germany’s time to show that it is fighting the cause of a strong, integrated and competitive Europe.”
A eurozone crash, the commission has predicted, would see £10 trillion wiped off the value of the European economy, a catastrophe that would send living standards plummeting to the levels of Latin America.
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