EU economics and monetary affairs commissioner Olli Rehn calls for a substantial increase of the European bailout fund ahead of the meeting between European finance ministers next week. Mr. Rehn also issue a stark warning about all the deficit-slashing austerity measures that European states have so far imposed – it is not enough.
“There is insufficient ambition and a lack of urgency in implementation. That needs to change.”
Well, there is one thing the EU leaders absolutely not is lacking, and that is ambitions. The economics and monetary commissioner is asking for Europe to embrace structural reforms to bring an end to the debt crisis – by the end of this year.
“We need to review all options for the size and scope of our financial backstops – not only for the current ones but also for the permanent European stability mechanism too,” EU economics and monetary affairs commissioner Olli Rehn writes in an article in the Financial Times Wednesday.
“There is insufficient ambition and a lack of urgency in implementation. That needs to change,” he writes.
The commissioner, who calls for Europe to embrace structural reforms to bring an end to the debt crisis this year, wants to see changes to tax and benefit systems, reform of labor markets and pension provision, a loosening of business regulation and more investment in innovation.
“This calls for a comprehensive response by the whole EU and for bold fiscal and structural measures in all member states.”
He issued the call ahead of the unveiling of the European Commission‘s first annual growth survey, essentially a template with spending recommendations for EU member states, published as part of an effort to bring European-level coherence to national budgetary plans.
The EU member states are already considering an increase in the effective lending capacity of European Financial Stability Facility (EFSF).
While the EFSF kitty amounts to €440 billion, as more countries become borrowers from rather than guarantors of the fund, the actual capacity of the fund currently sits at roughly €250 billion.
Some governments favor a hike in the effective lending capacity to the full €440 billion, while others are looking to a doubling of the fund.
Member states are considering expanding the role of the EFSF to permit the common purchase of government bonds, an exercise which is currently the competence of the European Central Bank.
According to EU sources, any decision on the matter hinges on the result of government bond auctions this week, particularly Portugal’s trip to the market, EUobserver.com reports.
Mr Rehn told reporters Wednesday that “rigorous” cuts and “structural reforms” were necessary for Europe to emerge from its ongoing debt crisis and return to growth.
“Without major changes in the way the European economy functions, Europe will stagnate and be condemned to a viscous circle of high unemployment, high debt and low growth,” he said.
Adding the following warning: “Without intensified fiscal consolidation across member states, we are at mercy of market forces.”
(Now, that’s also an interesting perspective!)
The commission says that “bold” and “resolute policies” are needed to turn around weak projected growth of around 1.5 percent for the EU over the next ten years and 1.25 percent for the euro zone.
Brussels wants to see further cuts to budgets in 2012 on welfare reform – including more conditionality attached to benefits, and a raising of the “premature” retirement ages.
Labor markets should also be made more flexible and “strict and sustained wage moderation” should be maintained.
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- Top EU official calls for bigger bailout fund (ctv.ca)
- EU leaders want swift deal on bigger eurozone bailout fund (guardian.co.uk)
- EU Aims for ‘Comprehensive’ Crisis Solution, Rehn Says (businessweek.com)
- Efsf 2.0 (ftalphaville.ft.com)
- EU’s Rehn, Barroso Call For EFSF To Be Enhanced, Reinforced (forexlive.com)
- Update:Rehn, Barroso Call For EFSF To Be Enhanced, Reinforced (forexlive.com)