BSP: Prolonged euro debt crisis bad for PHL, emerging markets

Market volatility lies ahead for the Philippine and other emerging Asia markets following the uncertainties caused by the decision of Greece to submit to a vote Europe’s bailout strategy for its economy, the Bangko Sentral ng Pilipinas said Thursday. "Should that lead to disorderly default and contagion to the rest of Europe, we could see some adverse effects on financial markets in emerging market economies from the possibly disorderly capital flows or reflows as investors adjust their portfolios based on how they perceive risk," BSP Gov. Amando Tetangco Jr. warned. The BSP chief viewed the latest wrinkles and wrangling in Europe as development that could offset the signs of improvement in the United States economy. "The global economy is interconnected. Emerging market economies can be insulated, but we are not immune. It is therefore quite important that the Eurozone economies cooperate towards a speedier and credible resolution to their problems," Tetangco explained. European monetary policy Ask senior European Union policymakers in private what can stop the euro zone's festering sovereign debt crisis, and the answer is "the European Central Bank." The federal institution at the heart of the 17-nation currency area could declare itself Europe's lender of last resort, reassuring markets that there will always be someone to buy member states' bonds. Economists from New York to Beijing are convinced such a move, backed by the central bank's power to print money, would stop the run on Italian and Spanish debt swiftly and help restore confidence in the euro area. But it runs counter to half a century of German monetary orthodoxy and would require a change in the EU's governing treaty to remove a prohibition on the central bank funding governments, which Berlin would be certain to oppose. Making the ECB the euro zone's ultimate backstop is the course advocated publicly by non-euro Britain and privately by some US policymakers, but it looks unlikely any time soon. A second option, pushed in vain so far by French President Nicolas Sarkozy, would be to let the euro zone's €440 billion rescue fund act like a bank and borrow money from the ECB to intervene in the bond market. — With Reuters/ ELR/VS, GMA News