–Adds Comments On Risks Of Protectionism, Loss Of Reform Momentum
PARIS (MNI) – There is no systemic problem in the Eurozone and the
single currency is not about to disappear any time soon, Angel Gurria,
secretary general of the Organization for Economic Cooperation and
Development, said in a television interview Thursday.
“Frankly the euro has a long life. More countries are going to want
to join the euro,” Gurria told CNBC, adding his voice to the chorus of
senior officials who rushed to the defense of the single currency at the
World Economic Forum’s annual meeting in Davos, Switzerland.
“This is not a systemic problem of the euro,” Gurria asserted.
“This is about some [EMU] members having problems. In particular, he
mentioned Ireland, which is going through a delayed banking crisis, and
Spain, where he said the market’s negative view is unjustified.
“Basically there isn’t any reason why there should be market
pressures on Spain like that; they’re dealing with all the right issues
and doing it at the right time,” he argued.
Gurria also noted that Eurozone governments and institutions “have
never been better prepared” than they are now, after having extended aid
to Greece and Ireland and created, in cooperation with the IMF, a rescue
fund to deal with possible future problems.
“Now they have half a trillion euros ready, and they have the ECB
with another quarter trillion or whatever to fund the banks, and they
have the IMF with another quarter trillion,” Gurria noted. “So you’ve
got a full trillion; that’s before they start talking about making it
bigger. They’ve never been better prepared to address issues if they
come.”
Gurria warned that as the world exits the crisis, there is a risk
of rising protectionism and a breakdown of discipline and reformist
momentum as nations seek to recover what they lost economically over the
past three years.
“It’s about whether we are getting out of this crisis and applying
the right reforms, and it’s going to be cut-throat going out, because
there’s been so much loss in terms of jobs, in terms of welfare, in
terms of exports,” Gurria warned. “So everyone is going to want to
recover that as soon as possible.”
“That eagerness in order to recover those losses is creating a lack
of discipline, a bit of a stampede and speculation, not only in terms
trade protectionism or investment protectionism,” he said. “Also, you’ve
got this currency protectionism — these currency wars, as the finance
minister of Brazil called it — which is of course another form of
protectionism.”
The “jury is still out in terms of the crisis,” he said. “We still
have as a downside risk the fact that we could have problems in the
financial sector.”
Gurria said the crisis had been caused by a “massive failure” on
the part of regulators and risk managers at banks. “We have addressed
that to a great extent,” he said. “But it is not over and we have not
cleansed the banks of the bad assets, and we certainly have not finished
the recapitalization.”
Gurria cited both progress and challenges on the fiscal front. “The
Americans are now realizing their deficit is unsustainable and they’ve
got to bring it down. They have to look towards a soft landing in terms
of the fiscal deficit,” he said.
“And the Europeans know it’s going to be a very difficult balancing
act between continuing with the recovery and at the same time bringing
down their deficits.”
Earlier today, French President Nicolas Sarkozy launched an
impassioned defense of the euro, saying he and German Chancellor Angela
Merkel “will never, never let the euro be destroyed.” The disappearance
of the euro would be “cataclysmic” for Europe and cannot even be
considered, he said.
–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com
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