The International Monetary Fund said Europe's situation poses a greater risk to Asia-Pacific than an increase in commodity prices or a hard economic landing in China. The stance highlights concerns in emerging markets about the sovereign-debt crisis and whether it will be compounded by a contraction in balance sheets of European banks. "An escalation of the crisis with a disorderly, large-scale, and aggressive trimming of balance sheets could have a serious impact on Asia," according to the IMF.
Michel Barnier, the EU's internal-market commissioner, voiced support for an economic-growth pact, which would complement the region's austerity push. "I am advocating that we prepare a European growth initiative in addition to the agreements on budget discipline," Barnier told a German newspaper. He said the initiative would include "project bonds" to finance infrastructure, use of EU structural funds and increased funding for the European Investment Bank.
European finance ministers are set to meet Wednesday to discuss Basel III capital rules for banks. Officials have struggled to reach an agreement on the rules, which will force banks to come up with billions of euros in capital. Sweden is expected to stand its ground on the right to subject banks to tougher capital rules. The disagreement highlights a challenge facing Europe as its financial sector permeates national borders, while many rescue efforts fall on individual countries.
The Spanish economy contracted 0.3% in the first quarter, starting a double-dip recession. Meanwhile, Standard & Poor's downgraded the credit ratings of 11 banks. PIMCO CEO Mohamed El-Erian said Spain's crisis will "worsen into a vicious cycle" unless steps are taken to calm the banking system and change the labour market.