Economic crunch time in Europe

European finance ministers are in Brussels on Friday for crisis talks after more panic on financial markets. The discussions come as the German parliament is set to approve its share of a huge bailout package for indebted eurozone countries. French President Nicolas Sarkozy has denied that there are any disagreements between Paris and Berlin on reform.

Photo: Reuters

Trading on Wall Street suffered the biggest loss in more than a year on Thursday as the Dow Jones industrial average dropped by 376 points – the biggest one-day drop since February 2009.

Meanwhile in Asian markets the Japanese Nikkei closed down 2.5 per cent, having lost more than six per cent since the start of the week.

The markets are awaiting the result of Friday’s EU economic task force meeting which is expected to discuss economic and budgetary surveillance.

Also on Friday the Bundestag lower house of parliament in Germany is set to approve its share of emergency loan guarantees. The German contribution to an EU-International Monetary Fund is likely to be worth around 150 billion euros.

The crisis prompted the head of the International Monetary Fund to weigh in during an appearance on French television on Thursday.

“I do not believe that the eurozone is at risk of breaking up,” he said. “The whole world is watching this […] and is losing confidence in Europe.”

French President Nicolas Sarkozy backed Chancellor Angela Merkel on Thursday and denied that there were any differences of opinion on penalties for eurozone countries that break deficit rules.

“In terms of our relations with Angela Merkel, we’re doing everything to ensure that they are in harmony, that they are complementary, that they are full and that they show a common ambition,” Sarkozy told reporters.

Following his meeting with new British Prime Minister David Cameron, it is thought Sarkozy was trying to patch up any differences raised after comments made by French Economic Minister Christine Lagarde who had insisted that the euro was not in danger.

Sanctions, including the withdrawal of EU funds and removal of voting rights, are measures being discussed that could be used against eurozone countries which have public deficits that exceed set limits.

“There is total agreement between myself and the chancellor on the principle of thinking about new sanctions,” Sarkozy said.

The two leaders are expected to organise “joint preparation” for a meeting of EU heads of state on 17 June, and for a coordinated effort at the G20 meeting at the end of June.