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Eurozone crisis: what happens next?

A series of crunch meetings and important data releases over the next two weeks will go a long way to deciding the future of Europe’s troubled currency union

There are hysterical warnings almost every day that the euro currency club cannot survive the ongoing Greek crisis. A wide range of investment bank analysts, economic consultancy firms and European Union policymakers are convinced the eurozone will be torn apart by the wrangling over how much cash to loan the Greeks and how much of the country’s debt to write off.

A €13bn bond-buying spree last week by the European Central Bank (ECB) has also added to the controversy. The purchase of Italian and Spanish government debt led to the resignation of Jürgen Stark, the ECB’s hardline chief economist, who argued that Rome and Madrid should be prevented from accessing ECB funds before instituting further austerity measures.

Investors, many of them the big US investment funds, have taken flight and pulled their money out of the eurozone in favour of safer havens, including UK and US government bonds.

Over the next few weeks there will be a series of crunch meetings and data releases that will determine the outcome of the current debate.

At its heart, the eurozone’s problems remain rooted in the banking sector. A decision by the French and German parliaments to underwrite their biggest at-risk banks would take the problem off the table and allow for an orderly default by Greece next year. But policymakers remain in denial and prevarication among politicians dumps the problem back in the ECB’s lap.

But Europe’s central bank remains deeply divided over its support for Greece, with Stark’s resignation symbolic of German reluctance to lend Athens any more money.

Will there be a second credit crunch to match the Lehman Brothers collapse? It is becoming increasingly likely, as fear and anxiety at the likely impact of a hasty and disorderly Greek default drives banks and investment funds to stop lending. These high level meetings over the next few weeks will prove pivotal.

16 September

An informal meeting of the EU’s economic and financial affairs council (Ecofin) will begin in Wroclaw in Poland. Eurozone finance ministers will be under pressure to form a united front and show solidarity with Greece.

19 September

Jens Weidmann, a member of the ECB’s governing council, is due to speak in Germany’s parliament about the eurozone’s rescue plan for Greece. Weidmann, who is also the president of Germany’s central bank, the Bundesbank, said on Tuesday that the ECB had burdened itself with “considerable risks” and that these should be unwound – a thinly veiled attack on the bond-buying plan.

20 September

The European Banking Authority, the recently formed EU banking regulator, holds its inaugural meeting in London. It is expected to report that EU banks are in good shape, without providing details.

Belgian prime minister Yves Leterme is to speak in Brussels on the euro crisis.

The latest results of Germany’s monthly ZEW survey of economic sentiment, which was heavily down in August, are due to be released. Another gloomy report is likely to increase resistance to Germany’s leader, Angela Merkel, extending bailout terms for Greece et al.

The IMF annual conference in Washington gets under way, at which point its World Economic Outlook report, known as the Weo, will be released. City experts believe it is likely to contain downward revisions to growth forecasts for major economies.

21 September

The IMF releases its global financial stability report on the state of banks across the world.

Minutes of the Bank of England monetary policy committee will be published. They are expected to show increasing anxiety at the eurozone slowdown and signal preparations for a second round of quantitative easing in the UK.

22 September

New IMF boss Christine Lagarde, the former French finance minister, will hold a press conference and answer questions about the prospect of a Greek default.

23 September

A series of significant data will be released on the French economy, including retail sales, production outlook and consumer and business confidence surveys. France is in the spotlight because its banks are considered most vulnerable to any Greek default. A worsening domestic situation will not improve their outlook.

OECD president Angel Gurría and outgoing ECB president Jean-Claude Trichet will give speeches at the IMF on the outlook for banks and the financial stability of the eurozone.

24 September

German finance minister Wolfgang Schäuble will speak at the Institute for International Finance in Washington. An arch-conservative, he could possibly inflame anxiety about Greece with a call for limits on lending to Athens.

29 September

The parliamentary groups in Merkel’s coalition are expected to put reforms to the eurozone’s financial rescue fund to a vote in Germany’s Bundestag.

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