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Saturday, August 06, 2011 2:55 PM

Euro-Area Central Banks to Hold Crisis Call; G-7 Officials to Discuss Coordinated Action; Ratings of UK, France in Jeopardy; Meeting Agenda

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In "secret" meetings (that everyone knows about) Euro-Area Central Banks to Hold Crisis Call

Euro-region central bank governors will hold emergency talks tomorrow aimed at stopping Spain and Italy from becoming the next victims of the sovereign debt crisis and limiting the market fallout from the first U.S. rating downgrade in history.

The central bank heads will hold a conference call at 6 p.m. Paris time, said a euro-area central bank official who declined to be identified because the talks are confidential. An spokesman for the European Central Bank declined to comment.
Coordinated Action

The Trend Letter reports AP source: G-7 finance officials to discuss co-ordinated central bank action
Financial officials from the Group of Seven industrialized nations will discuss how to co-ordinate action among their countries' central banks, a person familiar with the matter said Saturday, following several days of market panic and a downgrade of the U.S. credit rating.

The person spoke on condition of anonymity because the level and timing of the contacts had yet to be confirmed.

French Finance Minister Francois Baroin, whose country currently holds the G-7 presidency, said he had been in close contact with his G-7 counterparts "throughout the previous days and also this very morning."

"We'll be carefully watching the evolution of what might happen on Monday," Baroin told France's RTL radio, without providing details on the contacts. The G-7 members are Britain, Canada, France, Germany, Italy, Japan and the U.S.

The G-7 contacts come after one of the worst weeks in global financial markets since the collapse of U.S. investment bank Lehman Brothers in 2008.

Stabilizing Italy and Spain is set to be the biggest test for the 17-country eurozone, since their large economies are likely too big to support with full-blown bailouts.

Because of that, eurozone leaders last month decided to give their bailout fund new pre-emptive powers, such as the ability to buy distressed government bonds on the open market like the ECB, extend short-term credit lines or help re-capitalize struggling banks.

However, those new powers have not been implemented yet — a process that may take until early September unless national parliaments are called back from their summer recess. Analysts also warn that at the moment, the bailout fund is too small to successfully use its new tools.

Mansoor Mohi-uddin, a managing director at UBS, warned that besides undermining investor confidence in the U.S., S&P's downgrade may herald similar action from rating agencies on other top-rated countries.

"The sovereign ratings of other AAA rated countries like the U.K. and France are likely to come under question," Mohi-uddin said in a note.
Summary of Meeting Agenda

Few details have been released on the "secret" meetings but I have a list of agenda items in advance.

  1. How to kick the can down the road
  2. How to make it look like we are not kicking the can down the road
  3. How to get Germany to agree to kick the can down the road
  4. How to silence Germany if Germany refuses to kick the can down the road

Mike "Mish" Shedlock
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