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Merkel, Lagarde meet amid rising market tensions

01-11-2012 08:40 BJT

BERLIN, Jan. 10 (Xinhua) -- German Chancellor Angela Merkel and International Monetary Fund (IMF) managing director Christine Lagarde held talks Tuesday as the financial market saw rising fears and tensions despite recent efforts to curb the eurozone debt crisis.

Lagarde is scheduled to discuss with Merkel on the economic outlook of Hungary, a non-eurozone country, which is threatened by the danger of defaulting on debts.

The debt crisis, which seemed to have abated during the Christmas season, has come back with a vengeance. Turmoil has returned to the markets this week despite eurozone efforts to stem the crisis at the end of last year, as investors sought safe havens for their money.

According to the European Central Bank (ECB), banks parked a record sum of 481.94 billion euros (628.4 billion U.S. dollars) overnight with the central bank on Monday, which was the third record in three days.

The unprecedented deposit suggested that tensions in the financial system would continue despite record injections of liquidity by the ECB last month. The ECB agreed in December to loan a record 489.2 billion euros (625.5 billion dollars) to 532 banks for as long as three years in order to assuage fears about the financial sector and support sovereign debt sales.

Rising levels of deposits at the ECB suggest market jitters since the money deposited earns interest of only 0.25 percent, as banks would rather deposit the money with the ECB than lending it in the interbank market for higher yields.

In Germany, the issuance of six-month bonds at negative interest of minus 0.01 per cent on Monday raised 3.9 billion euros (5.0 billion dollars), which means investors began to essentially pay Germany to hold their money as they believe it is safer than keeping the money in bank accounts.

Merkel has been in a whirlwind of diplomatic meetings this week. During talks with French President Nicolas Sarkozy on Monday, she urged Greece to agree a deal with its creditors on the restructuring of the country's national debt.

Merkel said that Greece will not receive its next batch of bailout cash unless the terms of the private sector involvement are agreed very soon.

Merkel will also talk with Italian Prime Minister Mario Monti on Wednesday to get to grips with spreading debt crisis, with Italian borrowing costs rising above the 7-percent barrier that many economists consider to be unsustainable.

Italy, due to pay back a huge amount of maturing debt this year, need to borrow heavily in the first quarter. As the third biggest economy in the eurozone, Italy is a key focus of the current efforts in combating the debt crisis.

Monti will host Merkel and Sarkozy in Rome on Jan. 20, ahead of a meeting of eurozone finance ministers in Brussels three days later.

Editor:Zhang Hao |Source: Xinhua

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