LONDON -- The leaders of Europe’s two biggest economies pledged Friday to “do everything to protect” the continent’s common currency, whose long-term survival has come under fresh doubt from investors worried about Spain and Italy.
After a telephone conference, German Chancellor Angela Merkel and French President Francois Hollande issued a statement reiterating their countries’ commitment to “the integrity of the Eurozone,” the 17 nations that use the euro. But the two leaders offered no new measures to stem the crisis of confidence that has plagued the currency bloc for nearly three years.
Their joint statement came at the end of a volatile week that initially saw European stocks plunge in value because of increasing concerns over the creditworthiness of Spain and Italy. Borrowing rates for the two countries, which are locked in recession, climbed sharply as investors bolted for the safe haven of German and U.S. bonds.
But markets recovered some ground in the last two days following a comment by Mario Draghi, the head of the European Central Bank, who hinted at possible new intervention by the bank in the region’s long-running debt crisis. Officials in Madrid and Rome have urged the bank to buy some of their bonds to help bring down the high interest rates that the two capitals can scarce afford over the long term.
Like Merkel and Hollande, Draghi pledged Thursday to do “whatever it takes” to preserve the euro.
But the daunting challenge facing him and other European leaders was illustrated by new figures Friday showing that the unemployment rate in Spain, already the highest in the Eurozone, had edged even higher. At the end of June, the Spanish jobless rate stood at a whopping 24.6%, a level not seen since at least 1976. For those under the age of 25, the figure is even higher: 53.3%.
Spain now expects that its economy will continue to shrink through the rest of this year and next, with growth finally returning in 2014. But adding to its woes is a banking system stuck with billions of dollars in bad loans from the country’s real-estate bubble, a problem beyond the government’s resources to solve on its own.
Eurozone leaders have agreed to recapitalize Spanish banks, to the tune of up to about $123 billion, through a rescue fund that has already been tapped to bail out the heavily indebted nations of Greece, Ireland and Portugal. But instead of reassuring investors, the deal has only fueled fears that the Spanish government, which retains ultimate responsibility for paying the money back, will be overwhelmed and will require a full-fledged bailout of its own.
The problems besetting Europe have had ripple effects around the world, including in the U.S., where officials have repeatedly warned that the global economy is at risk unless European leaders resolve their debt crisis.
In a sign of deepening worry across the Atlantic, Berlin announced Friday that U.S. Treasury Secretary Timothy Geithner will meet with German Finance Minister Wolfgang Schaeuble on Monday on the German island of Sylt, where Schaeuble is vacationing.
Photo: German Chancellor Angela Merkel, left, talks to French President Francois Hollande in Berlin on May 15. On Friday, the two leaders issued a joint statement vowing to protect the euro. Credit: Markus Schreiber / Associated Press.