China, U.S., Europe battling over a shrinking global-trade pie

In polite, diplomatic language, China this week accused Eurozone leaders of piling up debts that threaten a global economic crisis, and the Europeans countered with complaints that Beijing manipulates its currency to unfairly skew trade in its favor.

The subtle verbal shots fired on the fringes of the Asia-Europe Summit in Vientiane, Laos, echo a theme raised during the U.S. presidential election, when Republican challenger Mitt Romney vowed to take up the gauntlet of a trade war he said had been thrown down by China.

 Both battles reflect the fear and uncertainty confronting the world's biggest economies in this fifth year of stalled growth and persistent recession, trade experts say. And with little hope on the horizon for revving the main economic engines any time soon, the rhetoric and posturing are likely to grow sooner than the rivals' bottom lines.

The European Union is China’s largest trading partner, and the sovereign debt crisis afflicting the 17 nations that use the euro common currency has been cutting into Europeans’ ability to buy Chinese goods. On Monday, Chinese Premier Wen Jiabao told the European delegates that they needed to come up with “a clear and reliable" plan for resolving the debt crisis that is stifling growth and trade.

French President Francois Hollande countered with a swipe at China’s artificially suppressed currency value, which makes Chinese products cheaper than they should be and contributes to the trade imbalance favoring Beijing.

"Europe has always trusted the market on condition that the rule of reciprocity is the same for everyone," Hollande said, alluding to the artificially set value of the Chinese yuan, also known as the renminbi. "We need to have equal exchange. We believe in an open market system."

Trade and economic analysts say China has moved some distance to correct currency distortion over the last few years, with the yuan exchange rate improving from more than 8 to the dollar to 6.29 on Tuesday. That’s close to a 25% appreciation, most of it in the last four years, noted Perry Wong, director of research for the Milken Institute and a frequent visitor to China.

Some economists set the actual value at closer to 5 yuan to the dollar, but full correction cannot be accomplished overnight, Wong said.

"Transformation in China will take time. In terms of structural change, for them to rely less on exports and import more goods from foreign countries, and to promote the quality of labor in China, will take years," Wong said. Most countries intervene to some degree to "more fully accommodate their own domestic economic agendas," he added, including the U.S. Federal Reserve Board policy of quantitative easing.

China’s alarm over the European debt crisis is justified, as it could portend a coming period of global economic upheaval, said Bruce Abramson, a partner with the Rimon Law Group and an expert in valuation, intellectual property, trade and competition.

"The Eurozone crisis is likely to spread into a global monetary crisis. It’s a testament to the Eurocrats that they have held it together as long as they have," said Abramson, predicting a five- to 10-year period of recession or feeble growth on the continent, in the United States and potentially in China. Growth this year in China's economy is pegged at 7.4%, down from 10% to 12% only a few years ago.

The persistent pressures presage more friction over trade rules and practices, Abramson said.

"Economic growth is a necessary prerequisite for peace, tolerance, acceptance -- all kinds of good things. But when the pie is shrinking, everybody, whether local, individual or national, worries about how to hold on to what they already have."

When you’ve got 10 people vying for control of only nine things of value, "you either learn how to make more things or how to have fewer people," he said. "More things is economic growth. Fewer people is war."

Jamie Metzl, a senior fellow at the Asia Society, said voices within China's centrally planned economy are gaining strength in their calls for structural reforms that would boost wages and social services for Chinese workers and find a better trade balance by allowing the currency to float to its actual exchange value.

"China is making preliminary steps toward making its economy less oriented toward exports, but the economy is still massively oriented toward exports," Metzl said, pegging the share of its output sold abroad at 70%.

That imbalance will persist as long as the yuan is undervalued and workers are underpaid, Metzl said.

"Certainly recession in Europe and sluggish growth in the United States are harming China’s ability to export. But unless China undertakes significant structural reforms, growth in China is very likely to continue to decelerate because of the inherent problems and imbalances," he said.

China’s communist government also plays "way too strong a role in the domestic economy," he added, which stifles innovation in the private sector that would make Chinese products more competitive and foster a healthier global trade environment.

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Photo: A China Shipping Container Lines Co. vessel enters the Port of Long Beach this week. The U.S. Census Bureau is scheduled to release trade balance data on Thursday. Credit: Tim Rue / Bloomberg

Insert: Chinese Premier Wen Jiabao arrives at the Asia-Europe Summit in Vientiane, Laos, on Tuesday. Credit: Barbara Walton / European Pressphoto Agency

Sanctions, currency chaos igniting unrest in outcast Iran

Soaring prices at Tehran's cavernous Grand Bazaar have ignited violence this week as money traders and vendors clashed with riot police over the plummeting value of the Iranian currency, which is being gutted by international sanctions and mismanagement by the Islamic regime.

What for most Iranians has been an abstract political dispute between their leaders and Western countries concerned about Tehran's nuclear ambitions has suddenly hit them in their wallets and pushed them to lash out. The rial has lost 80% of its value against the U.S. dollar in the last year, a decline accelerated by tightened U.S. and European Union sanctions now depriving the regime of half the hard currency it was earning from oil exports.

Iranian President Mahmoud Ahmadinejad blamed the deepening economic chaos on foreign enemies, contending there is "no economic justification" for the public scramble to dump rials in favor of dollars, euros and gold. Supreme leader Ayatollah Ali Khamenei also struck a defiant pose, reasserting Tehran's right to enrich uranium and vowing that Iranians "will never surrender to pressure."

But Iranian exiles and scholars see the angry outbursts in the marketplace as a sign that ordinary Iranians are finally fed up with a regime that has brought them isolation, insecurity and eroding living standards. They see a population, resentful of a crackdown on dissent three years ago, now edging toward rebellion.

The unrest also demonstrates that the U.S. policy of letting sanctions and diplomacy undermine popular support for the regime is having the desired effect, confronting Tehran with its gravest challenge since Islamic clerics came to power in a  1979 revolution, the experts say.

The street value of the rial has dropped by half in the last two months and plunged 18% on Monday alone. The unofficial exchange rate for the dollar -- more than 35,000 before back-alley trading halted -- is almost three times the official rate of 12,260. But that subsidized exchange rate is available only from state banks to a limited and shrinking number of key importers.

Money traders stopped selling dollars Tuesday, confused over how to price the swiftly deteriorating rial. Some vendors closed their shops in protest of the government's failure to intervene and prop up the currency; others boosted prices beyond what many shoppers can or will pay.  

Before harsher sanctions kicked in three months ago, Iran's government had been using a sizable share of its $100-billion annual oil earnings to subsidize dollar-denominated food and consumer goods, to keep prices stable and placate the population, said Abbas Milani, a Tehran-born academic who directs Iranian studies at Stanford University.

Milani said he suspects the government was initially using the economic downturn brought on by the sanctions to put an end to the costly dollar subsidies. But he now concludes that the regime has been forced to let the rial tumble because it has run out of the hard currency needed to stop the slide.

"We're not talking about a billion dollars or 2 billion to stabilize a currency that has gone down so far. The government would have to find enormous sums of money to pour in, and if they had it they would have done it by now," Milani said.

"I don't think the regime can survive this one," he said, unless Khamenei does the unthinkable and meets Western demands that Iran cease enriching uranium beyond levels needed for civilian nuclear programs.

Tehran officials recently told the International Monetary Fund that they had $50 billion on hand, enough to see Iran through the sanctions bite for at least four or five months, Milani said. He calculates that the regime should have saved about $300 billion in a rainy-day fund over the last eight years. That no intervention in the currency crisis has been forthcoming tells him that much of the oil windfall has been squandered or siphoned off into private accounts of the Revolutionary Guards and government leaders.

"Social and political cohesion in Iran will be deeply disturbed by this economic crisis," predicted Alireza Nader, senior policy analyst on Iran for Rand Corp. "And it's not just the economic crisis -- you saw Iranians take to the streets in 2009 for a number of reasons, and those tensions have been simmering below the surface. We see them coming up now."

Nader pointed out that protesters at the bazaar this week have shouted denunciation of the regime's politics as well as soaring inflation. Shouts of "Leave Syria alone and think about us!" could be heard in clandestinely shot video footage of the angry crowds, he said.

 The Iranian government has been the sole regional supporter of Syrian President Bashar Assad and his brutal suppression of a rebellion now in its 19th month.

"Eventually this is going to put enormous pressure on the Iranian government to concede on a number of issues, not just the nuclear programs but domestic political issues as well," Nader said. "It's already gotten to the point where people's livelihoods are at stake and they're not going to tolerate that situation. We can definitely expect to see more unrest in the coming months."

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Photo: An Iranian shopper on Wednesday pays a fruit seller at the Grand Bazaar in Tehran with 50,000-rial banknotes. The sanctions-battered Iranian currency has lost 80% of its value in the last year, spurring inflation and social unrest. Credit: Abedin Taherkenareh / European Pressphoto Agency

Insert: Riot police block an approach to the Grand Bazaar on Wednesday after arresting money traders and dousing fires lighted in protest of the falling rial currency. Credit: European Pressphoto Agency

Iran president blames 'psychological war' for dropping rial

As the Iranian rial tumbled to new lows on Tuesday, Iranian President Mahmoud Ahmadinejad blamed the plummeting value of the currency on a “psychological war” waged against his government by the United States and his domestic critics.

The Tuesday news conference marked an unusually open admission by Ahmadinejad of the pain inflicted by Western sanctions, imposed to press Iran to curb its nuclear program.

The economic restrictions are “a hidden and heavy war on a global scale,” Ahmadinejad said, arguing that the West had targeted Iran's people, not its government.

The president also complained that critics such as parliamentary speaker Ali Larijani had wrongly laid the blame for the sinking rial with government mismanagement instead of “the economic war of the enemy.” He singled out Fars News Agency, which is close to the Revolutionary Guards and interviewed Larijani, arguing it had attacked his government for the past six months.

When “the enemy has thrown a rock on our path,” he said, “everybody needs to help throw the rock back to the enemy."

While Ahmadinejad fired back at his critics, street traders said the rial was trading Tuesday at a new low of 37,000 to the dollar, a stunning drop from just five days ago, when 26,900 rials bought a dollar. The street value is far lower than the official trading rate of 12,260 rials per dollar used by its central bank for essential goods, which most Iranians cannot access.

Latest threat to the Eurozone: Catalonia independence quest

Just when it seemed stability was on the horizon for the tumultuous Eurozone, with Spain getting a grip on its debt financing and a plan to bail out insolvent banks, a fresh threat to the common currency has emerged with Catalonia's reignited drive to secede from the Spanish kingdom.

More than a million residents of the country's most prosperous region rallied for independence in a protest of historic proportions on Sept. 11, Catalonia's National Day. Some  estimates put the crowd as high as 2 million, or more than a quarter of the 7.5 million who live in the northeast region including Barcelona. This week, after Madrid rebuffed Catalonia leader Artur Mas’ demand for more control over his region’s tax revenues, the regional parliament set a Nov. 25 date for polling Catalans on "self-determination."

Spain’s constitution doesn’t empower the regions to call votes on sovereignty and questions of national integrity. But Mas has said his region will go ahead with a referendum without the central authorities’ approval to address what Catalans consider a grave injustice: They pay as much as $20 billion more into national coffers each year than they get back in public services.

The prospect of a national breakup, no matter how remote and fraught with procedural complications, spurred Spanish King Juan Carlos into rare action on a political matter.

“In these circumstances, the worst thing we can do is divide our forces, encourage dissent, chase chimeras and deepen wounds," the king warned in a letter posted on a new palace website, the daily El Pais reported. It was an apparent allusion to the nationalist stirrings that spurred the Spanish Civil War in the 1930s and a dictatorship under Gen. Francisco Franco that endured until his death in 1975. It was the first time the Spanish monarch weighed in on a political issue in more than 30 years.

Other influential Spaniards have also stepped forward to propose compromise, such as a looser federal structure that would give rebellious regions like Catalonia more autonomy without fracturing a country that has also dealt with a Basque separatist movement for decades. Juan Luis Cebrián, media mogul and author, warned last week that all the secession talk threatened to unleash the “wild beast” of right-wing nationalism that shackled Spain’s development for much of the 20^th century.

Catalonia secession is neither a sure thing nor an imminent one, analysts note. Catalans for centuries have been bandying about the idea of independence for their thriving bastion of manufacturing, shipping, tourism and culture. The conservative government of Spanish Prime Minister Mariano Rajoy has made clear that it opposes Catalonia’s bailing on the rest of the kingdom, and it holds what  essentially could be a veto if the region envisions moving into statehood and taking its Eurozone membership with it. By charter, the Eurozone’s 17 members would have to unanimously approve induction of any new euro currency user.

Mas may be stirring the secession quest to force Madrid to cede more power to Catalonia over its own finances. But in an environment of deep public spending cuts, the second bout of recession in four years and unemployment afflicting 1 in every 4 Spaniards, the notion of sheering off the northeastern corner flanked by Andorra, France and the Mediterranean Sea is clearly appealing to many. Catalonia accounts for 20% of the Spanish gross domestic product and a quarter of its exports.

Catalonia secession has long been part of the political landscape in Spain and has just entered a more active phase because of the tough living conditions resulting from European Union austerity measures demanded to keep euro users' national deficits in check, said Fabian Zuleeg, chief economist at the Brussels-based European Policy Center.

"This is potentially more serious, as it reflects a real conflict between the national and regional levels," Zuleeg said. "The way Catalonia sees it, they've been paying in excessively into the national coffers and, because they have their own deficit, they have to go cap in hand to the Spanish government," only to be denied latitude to keep the regional economy on track.

The 2013 budget unveiled Thursday requires all regions to cut back further on already pared public spending and to generate more tax revenue to service staggering national debts. The piled-on austerity measures are fomenting unrest throughout the country, as seen this week in angry protests demanding job creation and investment in growth, which had to be dispersed with tear gas and mass arrests.

The Catalans' reignited campaign for independence "is an escalation but by no means the last act," said Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace. "But it's another source of tension in Spain, a complicating factor and another way that things could unravel."

Hit by bailouts, failing banks, unsustainable interest rates and mounting public resentment of the severe belt-tightening across the European periphery from Ireland to Greece, the common currency is at risk, Dadush said, of "death by a thousand cuts."

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Photo: More than a million supporters of independence for Catalonia rallied in Barcelona and other cities on Catalonia National Day, Sept. 11, pressing secession as a means of controlling their own finances and preserving their language and culture. Credit: Stefano Buonamici / Bloomberg

Deepening recession heats up talk of Greece exiting Eurozone

When the euro hit wallets and bank accounts on New Year’s Day a decade ago, champagne and fireworks greeted the Europeans' embarking on what was touted as an irrevocable course for prosperity and economic integration.

Over the years, though, as the economies of Greece, Spain and other Eurozone nations became mired in debt, expectations of a happy commune of affluence have given way to thoughts of breaking off the laggards to save the herd. What the Economist and other journals have referred to as a kind of "Hotel California that you can never leave" now looks to some to be exactly the hellish trap evoked by the Eagles in their 1970s ballad.

Greek officials disclosed this week that their economy shrunk 6.2% from April through June and that unemployment is close to 24% and rising. The shaky coalition government, confronted by strikes and protests against earlier austerity measures, has yet to identify the last $5 billion or so in budget cuts it must make to qualify for the next tranche of bailout funds due in September.

The bad news came as little surprise to the Eurozone’s better-off members, Germany first among them, which have complained for months that Athens has repeatedly failed to demonstrate the will to pare its bloated government payroll and get serious about collecting taxes.

A delegation of the so-called troika of creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- visited Athens last month and is expected to issue a critical report on the Greek balance sheet in September. That has shifted the conversation from whether Greece will exit the Eurozone to how many other common currency users might follow.

Even Greek analysts have become dubious of the country’s prospects for living up to the commitments made to get triple-digit billions in bailout funds. They have been issuing gloomy forecasts of an inevitable Greek exit -- or Grexit, as it has come to be called -- perhaps preparing the public for an eventual return to the drachma.

“The political system once more showed how counterproductive it is. Instead of designing a workable state, it tries to reproduce the one that already exists,” the Greek daily Kathimerini’s columnist Paschos Mandravelis groused Monday. In his analysis, titled “On another planet,” he accused the government of protecting well-connected allies and unproductive state jobs.

A week ago, Greek Finance Minister Yannis Stournaras said the government was still looking for about a third of the $15 billion in cuts to the 2013-14 budgets demanded by the troika in exchange for vital cash infusions. Debt inspectors are due back next month for a final review of whether Athens has gotten its finances in order, a judgment expected to be negative unless the government forces through deeply unpopular budget cuts and privatization plans in the final few weeks.

Elsewhere in the common currency club, the mood has changed from one of steadfast commitment to keeping the 17-nation Eurozone intact to mounting resignation that at least Greece will have to go.

Athens’ potential departure "has long since lost its horrors," German Economy Minister Philipp Roesler told ARD television recently. Luxembourg Prime Minister Jean-Claude Juncker, who chairs Eurozone finance ministers’ meetings, observed last week that a Greek exit would be “manageable.” On Monday, when German Chancellor Angela Merkel returned from a hiking vacation in the Italian Alps, she was confronted with even more dismissive comments by her coalition partners.

“An example must be made of Athens that the Eurozone can also show teeth,” Markus Soeder, Bavarian finance minister and member of a conservative sister party to Merkel’s Christian Democratic Union, told the Bild am Sonntag newspaper. He contended that Germany can ill afford to keep bailing out spendthrift euro members and that “further help to Greece is like pouring water into the desert.”

In the Economist cover story this week, a mock memo to Merkel on a possible Plan B advises her to consider two options to her current course of scrambling to hold the Eurozone together. One envisions Greece's departure, which alone could cost the euro area $398 billion in debt write-offs and transitional aid. The other scenario, in which Portugal, Ireland, Cyprus and Spain would also leave, could cost the rump Eurozone $1.4 trillion but halt the slow bleeding of bailouts to the struggling periphery, the respected London-based publication calculated.

Charles A. Kupchan, a professor of international affairs at Georgetown University and former European affairs director on the National Security Council under President Clinton, attributes the growing Grexit talk to an emerging consensus among economists that Athens' departure is a question of when, not if.

"Behind the scenes the European Union is making preparations for a Greek exit to contain the damage," he said of the latest assessments of the Eurozone's integrity.

Grexit would be manageable because of Greece's small economy and the fact that its finances are unlikely to ever meet Eurozone standards, Kupchan said. But he sees other departures as potentially destabilizing for the whole monetary union experiment.

"When you start talking about the Spanish or the Portuguese or the Irish leaving, that's a new ballgame," he said. "That's not a controlled exit of a member or two; it's a complete overhaul of the Eurozone."

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Photo: Mario Draghi, president of the European Central Bank, has pledged to do whatever it takes to protect the euro common currency. But mounting debts and persistent recession in some of the peripheral countries of the Eurozone have turned the conversation to managing the departure of Greece, instead of preventing it. Credit:  Hannelore Foerster / Bloomberg

Struggling euro nations jockey for central bank intervention

Greek leaders reluctantly agreed Wednesday to slash an additional  $14 billion in government spending over the next two years in an attempt to show creditors their intent to remain in the Eurozone.

In Spain, another of the 17-nation monetary union's debt-laden members, regional leaders acted out against similar planned spending cuts with protests and boycotts, although central government officials stood by their pledge to live up to the austerity measures demanded in exchange for a banking rescue.

And in another symbolic plea to more solvent Eurozone colleagues for help, Italian Prime Minister Mario Monti took his case to prosperous and creditworthy Finland for concerted action to reduce borrowing costs for euro users being strangled by soaring interest rates.

The campaign to shore up the common currency served as silent pressure on the European Central Bank  to do something at its Thursday board meeting to boost investors' confidence in the government bonds Italy and Spain need to float to pay their huge debts and to assure those already holding Greek paper that Athens won't default.

It took three contentious leadership meetings this past week for Greek Prime Minister Antonis Samaras to persuade his coalition partners to agree to the 2013 and 2014 budget cuts, which come on top of already drastic reductions in public services spending. After Wednesday's last-ditch negotiation, Socialist Party leader Evangelos Venizelos said he agreed to the belt-tightening because the newly assembled government was at risk of collapsing if agreement wasn't reached. Athens needed to present its creditors with a plan for further austerity measures to get the next tranche of bailout funds due this month to cover pensions, public sector wages and interest on its loans.

Expectations that the ECB would take some action to ease interest rates for Eurozone members were spurred last week when the bank's president, Mario Draghi, vowed to do "whatever it takes" to restore investor confidence in the euro and to prevent damaging "speculation" in the bond market. 

But the Eurozone's more financially stable members have warned the ECB not to overstep its authority. German Bundesbank President Jens Weidmann reminded central bank officials Wednesday that their main job is to fight inflation, not manage national budgets. German, Finnish, Austrian and other leaders in countries with good credit ratings also fear their borrowing costs will rise if the ECB intervenes to lower government bond yields for the bigger debtors.

Draghi's assurance that the ECB would act to protect the euro was matched by similarly supportive comments by German Chancellor Angela Merkel and French President Francois Hollande. Those reassuring words may have led Spanish and Italian officials to believe the central bank would find some way at its governing council meeting to get around European Union treaty restrictions on how the bank can use the region's collective funds. The ECB is prohibited from lending directly to governments, but some officers were reportedly advocating indirect loans for member states through a Eurozone bailout fund.

Economists point out there is little the ECB can do to resolve the Eurozone's long-term problems. While the central bank can ease loan conditions and refinance rates, the common currency club needs to push through legislation and treaty revisions that will create a centralized banking and regulation network to better control and coordinate member finances. That could take years, time the struggling governments don't have as they are  forced to borrow at unsustainable rates to keep up with their debt servicing costs.

German Vice Chancellor Philipp Roesler reiterated after a Cabinet meeting Wednesday in Berlin that his government remains staunchly opposed to the ECB granting a banking license to the bailout fund, known as the European Stability Mechanism, which would allow it to tap ECB funds at low interest.

"If you take away the interest rate pressure on individual states, you also take away the pressure for them to reform," Roesler told journalists.

That is a sentiment held among leaders of the more stable Eurozone countries, leading some analysts to say that the ECB was unlikely to take any bold action at its Thursday meeting.

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Photo: The European Central Bank governing council is to meet Thursday at its headquarters in Frankfurt, Germany, to consider proposals for easing borrowing costs for the Eurozone's most indebted member states. Credit:  Hannelore Foerster/Bloomberg

Confidence teetering in Eurozone, economists warn

It's been more than two decades since the Iron Curtain fell and Europeans embarked on an ambitious mission to build a powerful economic, political and social union in place of the Cold War divide. And for more than two decades, Germans have been footing most of the integration bill.

Compassion fatigue set in long ago among the continent's most prosperous people, and the mounting costs of keeping the Eurozone intact a decade after the common currency was introduced have all but exhausted Germans' generosity toward their needy neighbors.

In this summer of economic discontent that is rattling financial markets worldwide, commitment to the 17-nation Eurozone has been a hard sell for German politicians whose constituents see only more expense and uncertainty with the wobbly fiscal union. Investors, too, seem to have increasing doubts about the euro's future and European Union leaders' ability to forge a viable plan for managing collective finances.

All eyes are on the European Central Bank this week following the vow of its president, Mario Draghi, to do whatever is necessary to keep Spain and Italy in the Eurozone despite skyrocketing interest costs for servicing their massive debts. The bank is constrained by European Union treaty provisions from loaning money directly to governments, and Germany has staunchly opposed proposals for funneling bank funds to needy member states through mechanisms meant to provide strictly supervised bailouts, not to bankroll loans.

The ECB “is ready to do what it takes to preserve the euro. Believe me, it will be enough,” Draghi assured investors last week, bringing about a short-lived reprieve in the interest rates demanded by lenders for 10-year bonds to finance Spanish and Italian debt.

"After Draghi's comments, expectations are quite high that the central bank will take action Thursday. But at the end of the day, the ECB cannot solve this problem," said Keith Savard, senior managing economist at the Milken Institute in Santa Monica.

The ECB can fiddle with collateral requirements and the refinance rate for some short-term relief, but what is needed to restore confidence in the euro is coordinated fiscal strategy and collective guarantees that new loans will be repaid, Savard said. It will take years, he noted, to execute the necessary legislation and treaty revisions once agreement is reached, which appears far from imminent as Germany and other Northern European euro users resist exposing their own good credit to the dodgy finances of some of their neighbors.

Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace in Washington, sees some progress -- "glacial," he said -- toward stabilizing the euro since May, when Greeks voted out the political coalition committed to the euro. Greeks managed to seat a pro-euro government in a second election in June, but they have yet to adopt the belt-tightening measures needed to get vital bailout funds due in August.

"There is urgency -- you see this in the volatility of the markets. But is catastrophe imminent? I don't think so. People know the ECB is there and, when push comes to shove, that the ECB will intervene," said Dadush.

Despite the barriers to direct lending to governments by the central bank, Dadush said it has managed to buy up at least $246 billion in government bonds at below-market interest for heavily indebted euro countries.

"Rules are there to be broken once the politicians decide this is what needs to be done," he said.

German resistance may also be broken, if the crisis escalates and threatens to further damage the market for Germany's cars, technology and other exports, said Fabian Zuleeg, chief economist at the European Policy Center in Brussels.

He is critical, though, of the German government's failure to make a strong case to its citizens about the benefits of preserving the currency union and moving forward with deeper financial integration.

"It's not a very positive way of engaging your citizens when you are scaring them into a situation where you say they don't have a choice," Zuleeg said.

All three economists interviewed Tuesday observed that Washington could help stabilize the euro if it were to buy the bonds of struggling states, demonstrating confidence in the currency that would inspire China, Japan, Brazil and other big economies to do likewise. They also agree there is virtually no chance that will happen, given the United States' own debt issues and a presidential election underway.

U.S. Treasury Secretary Timothy F. Geithner in effect confirmed Tuesday that the euro crisis would be left to the Europeans to resolve.

"This is completely within their financial ability to solve," Geithner said at a Los Angeles World Affairs Council event, although he  acknowledged that the politics of the problem may be a more difficult sell.

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Photo: German Finance Minister Wolfgang Schaeuble, left, meets Monday with U.S. Treasury Secretary Timothy Geithner at a vacation home on the North Sea island of Sylt, where they discussed the outlook for tackling the Eurozone debt crisis. During a Los Angeles visit Tuesday, Geithner made it clear that the euro woes were a matter for Europeans to resolve. Credit: Philipp Guelland / Associated Press

Evita now graces Argentina's 100-peso note

BUENOS AIRES -- Exalted in countless books, a Broadway musical and a Madonna movie, Argentina’s Eva Peron now graces that country’s 100-peso note in commemoration of her death 60 years ago Thursday.

In a ceremony, President Cristina Fernandez de Kirchner said she wants the Eva Peron commemorative peso note to become permanent, replacing one featuring Julio Argentino Roca, one of the country's early presidents.

“It seems to me to be an homage that we owe not only to her but to ourselves,” Fernandez told a gathering Wednesday at the presidential palace.

In the background was an enlarged facsimile of the bill, featuring a profile shot of the blond former dancer popularly known as Evita. She was the wife of President Juan Peron, who ruled from 1946 to 1955, and then again for nine months prior to his death in 1974.

The 100-peso note currently is valued at nearly $22.

IMF warns euro crisis at 'critical stage,' urges swift action

The International Monetary Fund warned Thursday that the Eurozone crisis has reached a "critical stage" and expressed fears for the future of the common currency unless the 17 nations that use it swiftly integrate their banking and fiscal policies.

"Despite extraordinary policy actions, bank and sovereign markets in many parts of the euro area remain under acute stress, raising questions about the viability of the monetary union itself," the IMF said in its report following a mission to assess the currency crisis.

The euro's value has plunged against the U.S. dollar and other currencies as recession-racked member states have become mired in debt and needed bailouts from international financial institutions to avert defaults.

The recent elections in Greece threw into question whether that Eurozone member, which has already been given $300 billion in bailout funds, would remain committed to the common currency and to paying its debts.

Market turmoil over the Greek debate about staying in the Eurozone has caused borrowing rates to soar for countries such as Spain and Italy, which must pay high interest rates on bonds sold to cover debt payments. Even after Spain sought help from European neighbors for its insolvent banks, and Greek voters expressed their support for staying in the Eurozone, the interest on Spain's 10-year notes has hit record highs, exceeding the 7% level that pushed Greece, Portugal and Ireland to ask for bailouts.

"The financial and economic environment continues to deteriorate," the IMF warned in its report from the institution's Washington headquarters. "Investors are withholding funding from member states most in need, moving capital to safe havens and driving risk premiums to new records."

Eurozone crisis: A love-hate relationship imperils the currency

The Irish voted "with a heavy heart" this week to tough out the hardships of remaining a member of the Eurozone. Greek and French voters protested the pain of austerity last month by throwing out leaders who had been slashing jobs and services to reduce debt. Spain and Italy may be more committed to the belt-tightening required to shore up the euro, but skeptical investors could undermine those sacrifices by waging a run on their banks.

Europeans have been lurching from one crisis to another for the last four years as recession wreaked havoc with many of the 17 Eurozone economies that have too little in common beyond the coins and banknotes they use. Some of the world's most influential economists now worry that crisis could escalate to catastrophe if Greeks heed the siren song of a fiery leftist telling them they can keep their euros but renege on austerity measures they promised in exchange for bailout funds.

A German-led effort to get the bloc's financial houses in order has exposed flaws in the common currency's management and ambivalence among euro users about the continent's ambitious goals for economic integration. What is accepted by frugal, savings-minded Northern Europeans as laudable restraint in public spending has sown resentment in Eurozone countries ravaged by high unemployment, teetering banks and withering cuts in social services.

Ireland's vote to approve the fiscal treaty signed this year by 25 of the European Union's 27 member states was a convincing 60.3% in favor. But politicians on both sides of the issue acknowledged that it was a hard pill to swallow for a country struggling to meet its obligations after being bailed out by Eurozone colleagues in 2010.

Ireland had one of the highest deficits in the Eurozone three years ago, but it has cut spending and debt enough to see prospects for emerging from a four-year recession. Small signs of economic improvement -- a marginal drop in unemployment last month and a hint of growth over the last year -- were enough to push the Irish to commit to the Eurozone's collective debt-reduction goals by endorsing the treaty.

"The astonishing thing about this campaign was that lots of people voted 'yes' with a heavy heart, and many voted 'no' with a heavy heart," said Joan Burton, Ireland's social protection minister, citing concerns in both camps about the treaty's potential constraints on spending to create jobs.

The long-term good may not be so prominent in the minds of Greek voters when they go to the polls June 17 to choose among candidates making brash and contradictory promises about Greece's future in the Eurozone. Alexis Tsipras has moved his radical left Syriza party to the political fore, according to the latest poll, with his vow to bail on the bailout terms and his dubious assertion that Greece would nevertheless retain use of the euro.

“The first act of a government of the left, as soon as the new Parliament is sworn in, will be a cancellation of the bailout and its implementation laws,” Tsipras told boisterous supporters Friday when he outlined the party's economic platform.

All recent polls in Greece have shown Syriza and the conservative New Democracy Party running a close battle for popular support, but neither likely to get enough votes to form a government on its own. That threatens a repeat of the fractured May 6 vote and futile attempts among the irreconcilable parties to form a coalition government. The latest survey -- and the last before a two-week moratorium on polling ahead of the election -- on Friday showed Syriza almost doubling its share of the vote captured last month, with 31.5% support compared with 25.5% for New Democracy, which finished first on May 6.

In a sign of the disarray afflicting Greece, the country didn't manage to update its unemployment statistics for the last three months for an EU report released Friday showing a euro era-high 11% joblessness across the currency union. In February, the last month for which Athens has released figures, 21.7% of Greeks were out of work.

More job cuts and tax hikes were due to be imposed this month ahead of the next payment of bailout money from Brussels. Those cuts have been essentially suspended in the absence of an elected government.

As Eurozone residents hold their breath awaiting the next Greek vote, more immediate worry has settled on Spain, where national leaders are urging fellow Europeans to help rescue Spanish banks saddled with defaulted loans issued during a building boom in the years before recession hit in 2008. Spain last week promised troubled lender Bankia nearly $24 billion to keep it afloat, but borrowing rates have soared to record highs -- nearing the 7% rate that pushed Ireland, Portugal and Greece over the edge and forced them to seek bailouts.

Spain, the fourth-largest economy in the Eurozone, may be too big to bail out, economists say, spreading fears for the future of the entire common-currency project.

The EU commissioner for monetary and economic matters, Olli Rehn, warned during a speech in Helsinki, Finland, on Friday that "the way things are going and under the current structures, the euro area has a significant risk of breaking up."

Eurozone states have "extremely tough decisions ahead, and it’s important to face the truth,” Rehn said, alluding to suggestions among other financial leaders that contingency plans should be drawn up to cope with the worst-case scenarios being threatened from several euro states.

Earlier this week, the European Commission called for creating a "banking union" that would allow the bloc's financial institutions to invest directly in troubled national banks, rather than force already indebted states to take on further obligations at unsustainable interest rates. But Germany has resisted the idea of pooling its sterling credit with other euro users, and Chancellor Angela Merkel also remains steadfast against loosening the spending shackles on struggling states to allow them to invest in growth.

The standoff amid possibly impending catastrophe has alarmed financial experts around the globe.

"The Eurozone is experiencing three crises at the same time -- a fiscal crisis, a banking crisis and a growth crisis," said former U.S. Treasury Secretary Robert E. Rubin, now at the Council on Foreign Relations, citing weak political leadership in Europe and deep concern for the situation in Spain. "If the Eurozone continues to unravel, not only will that have very serious consequences for the Eurozone, but I believe it will have serious and maybe even severe consequences for the entire global economy, including the United States."

In a commentary Friday in Britain's Financial Times, World Bank President Robert Zoellick drew disturbing parallels between what is happening now in Europe and the financial crises that were the bellwethers of the 2008 collapse on Wall Street.

"Events in Greece could trigger financial fright in Spain, Italy, and across the Eurozone," Zoellick wrote, saying that the summer ahead had "an eerie echo of 2008."

Eurozone leaders need to be ready to recapitalize banks if spooked investors rush to withdraw their euro-denominated assets, he said.

"There will not be time for meetings of finance ministers to discuss the outlook and debate the politics of incrementalism," Zoellick said. "In panicked markets, investors flee to safe assets, sparking other flames."

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--Carol J. Williams in Los Angeles

Photo:  Alexis Tsipras, leader of Greece's radical left Syriza, presents the party's economic program in Athens on Friday. Tsipras vowed to cancel harsh austerity measures demanded by the Eurozone leaders in return for bailouts of Greece's heavily indebted economy. Credit: Simela Pantzartzi / European Pressphoto Agency.