BRUSSELS (MNI) – The continued spread of the sovereign debt crisis
is partly unjustified but partly due to global factors and thus requires
a global solution, EU Economic and Monetary Affairs Commissioner Olli
Rehn said Friday.
Rehn called on Eurozone leaders and institutions to accelerate
their plan to boost the 17-country currency union’s crisis fund and
urged national governments to restore investor confidence with tough and
fast-acting fiscal and structural reforms.
Concerns about the US debt ceiling and slowing economic growth were
among the factors contributing to the market pressures facing Eurozone
governments, he affirmed before journalists at the Commission.
“The current turmoil is not just affecting Europe, but has a global
dimension and global repercussions,” he said. “That’s why the solution
has to be global as well. And that’s why international policy
coordination through the G7 and G20 is of critical importance. Europe is
playing and will continue to play its full role in this context.”
The recent surge in borrowing costs that has hit Spain and Italy in
particular was “not justified by economic and budgetary fundamentals” he
said.
“It is not as if economic fundamentals have changed overnight,” he
remarked.
Nevertheless, Rehn acknowledged that “other sources of tension can
be found closer to home.”
While Greece, Italy, and Spain have taken the necessary political
decisions to bring their fiscal positions under control and boost their
economic growth prospects, “forceful implementation” of these policies
was crucial, he said.
Lamenting that “markets have not reacted as we hoped” to the
Eurozone’s efforts to stamp out the crisis, Rehn reiterated that euro
area leaders were committed to doing “whatever is needed” to protect
financial stability.
“The political will to defend the euro should not be doubted,” he
stressed.
EU officials were “working night and day” to finalise the technical
details of the EU’s crisis response measures by early September and this
should reassure investors, he said.
Commenting on European Commission President Jose Manuel Barroso’s
call to rethink the scale and scope of the EU’s crisis fund, the
European Financial Stability Facility (EFSF), and its successor, the
European Stability Mechanism (ESM), Rehn said it was the Commission’s
“long-standing position”.
“Experience has really shown that we need to stand ready to adapt
our crisis tools to be credible and effective,” said Rehn.
Poor communication of the Eurozone’s crisis response, agreed at an
emergency summit of leaders on 21 July, was partly to blame for the
market’s continued unrest, he said.
Although it was “unrealistic” to expect a complete solution to be
fully implemented straight away, many of the measures agreed at the
summit were “concepts” that still needed to be developed in concrete
terms.
At the summit, Eurozone leaders agreed to grant the EFSF new powers
to intervene in secondary bond markets subject to certain conditions,
and also approved a new bailout package for Greece, involving private
investors in the process.
EU officials were struggling to communicate a “product” that was
still being finalised, he said.
The summit’s agreement, however, was “not the only important reform
we need to finalise,” said Rehn.
Tighter integration and reinforced economic governance and
surveillance within the Eurozone were also needed to “correct
imbalances”, he said.
–Frankfurt bureau tel.: +49-69-720142. Email: frankfurt@marketnews.com
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