Traders brace for eurozone crisis fallout
Global markets are set for a rocky day of trading after German leader Angela Merkel warned that it could take many months to rebuild confidence in the eurozone and schisms over financing the bloc's bail-out fund re-emerged.
Eurozone leaders used their New Year's message to highlight the dangers facing Europe's economy in the coming 12 months.
Angela Merkel warned that S&P's decision to downgrade nine eurozone countries demonstrated that politicians needed to step up their efforts to resolve the crisis. Photo: AP

The German chancellor warned that Standard & Poor's decision to downgrade nine eurozone countries on Friday evening demonstrated that politicians needed to step up their efforts to resolve the crisis, warning that it was a "longer process" that would take more than a few months.
"The decision confirms my conviction that we have a long way ahead of us before investor confidence returns," she said in a radio address. Germany was not among the countries downgraded.
The downgrades, after markets closed on Friday, marked a further escalation of the debt crisis, which has seen investors lose faith in euro governments' ability to service their debts.
Stalled talks over "haircuts", or writedowns, of Greek government debt will further worry investors, as they pose the threat of Athens making a disorderly default.
Nicolas Sarkozy, the French President, yesterday called for cool heads after his country was scalped of its prized triple-A rating, pushing up its borrowing costs.
"The crisis can be overcome provided that we have the collective will and the courage to reform our country," he said. "We must resist, we must fight, we must show courage, we must remain calm."
The rating agency had explained its move by warning that recent European policies "may be insufficient to fully address systemic stresses in the eurozone". While downgrades were widely rumoured, its decision to cut the ratings of some but not all eurozone nations has complicated the political situation.
In the UK, William Hague, the Foreign Secretary, warned that the clutch of downgrades "is serious. It underlines the fact that the eurozone is not through its problems."
Spanish Prime Minister Mariano Rajoy, responding to his country's own downgrade, pledged spending cuts and a reform of Spain's banking system.
While European leaders appeared to be signing from the same hymn sheet of reform yesterday, eurozone officials suggested there remained considerable doubts over how the region's bail-out fund would be funded, and by who.
"There is a debate. The question is still open and there is no consensus so far," one official reportedly told news agency AFP. Germany is thought to be still unwilling to increase its contribution to the European Financial Stability Facility (EFSF). The S&P downgrades could hit the EFSF's triple-A rating, economists have warned, sending borrowing costs higher.
In an example of the affect the crisis is having outside the region, Japan's prime minister warned that his country, hobbled with the world's largest debt load, could fall into the same problems. Yoshihiko Noda said Europe's situation "isn't a house burning on the other side of the river," telling voters: "We must have a great sense of crisis."
Attempts to stabilise the euro situation were further undermined on Friday after talks between the Greek government, international lenders and private sector holders of Greek debt collapsed.
Officials from the "troika" of Greece's international lenders – the International Monetary Fund, European Commission and European Central Bank – are due in Athens tomorrow to assess the country's efforts in cutting its borrowing and enacting reforms.