Tag Archives: Economy of Europe

Van Rompuy: Next hours are “decisive” for Greece and for Europe

JUST RELEASED: President of the European Council, presents the outcomes of the European Council to the European Parliament.

“There are decisive moments, and the next hours will be decisive. Not only for Greece, but also for the euro zone and the stability of the European economy.”


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EU’s New Watchdogs Warns of Crisis Being Far From Over

The European Union’s new economic super-watchdogs warns that “many risks” remain to the stability of the EU’s financial system and that the global crisis will last for many more years to come. Will someone please inform EU president Manuel Barroso?

“Reform of our financial system – both its structure and regulation – is essential if we are to avoid another crisis.”

Mervyn King


The two deputy chairs of the new European Systemic Risk Board (the bloc’s new Frankfurt-based supervisor of supervisors tasked with oversight of the financial system within the Union) gave a quite frank assessment of the state of capitalism in Europe in their first hearing before the European Parliament’s economics committee.

“There are still many risks to the recovery of the European economy,” says Mervyn King, the ESRB’s first vice-chair and head of the Bank of England.

“The economic challenges will last for many years … The financial crisis is very far from over and the impact will be felt for many years to come.”


He and his fellow vice-chair, Andrea Enria, also the head of the European Banking Authority, says  that the eurozone’s sovereign debt crisis is not the only danger present, according to the EUobserver.com.

Enria also warns that systemic risk still lies outside regulated areas and that financial innovation is happening so rapidly these days that even in the case of appropriate regulation, capital is already able to pick up stakes and move on to another, unregulated area.


Here’s the formal statement by Mr. Mervyn KIng:

Mrs. Bowles, and members of the Committee, let me thank you for the opportunity to appear before you and to make a brief opening statement.

The recent banking and financial crisis has had a devastating impact on the European economy. Total output is around 5-10% below where it would have been had output followed its pre-crisis trend. And the European banking system is still in need of further repair. Reform of our financial system – both its structure and regulation – is essential if we are to avoid another crisis.

An efficient and competitive financial sector is a crucial ingredient of a successful economy. But one of the main lessons of the crisis is that the balance sheet of the banking system expanded to the point where it became a source of fragility and led to greater volatility of the real economy. So one of the aims of the new European Systemic Risk Board (ESRB) is to look beyond individual institutions to the system as a whole.

The ESRB has taken some significant first steps. As you know, the General Board has already met twice this year and will meet again next month. A Steering Committee, on which I sit, has been established and is guiding the work to be presented to the General Board. To assist with that, the Advisory Technical Committee is up and running and the members of the Advisory Scientific Committee have been appointed.

Going forwards, the ESRB faces three main challenges.

First, to consider and make warnings and recommendations. There are still many risks to the recovery of the European economy. The sovereign debt crisis and the associated imbalances within the European economy, and the unsustainable patterns of demand resulting from very low long-term real interest rates, are among the most important. I am optimistic that the ESRB will not shy away from these problems, and I have been struck by the positive and determined commitment of so many senior policy-makers evident in the meetings to date.

Second, the range of policy instruments of the ESRB needs to be defined. Since the ESRB does not have binding powers, the analysis and arguments that it deploys must be of the highest standard if the principle of ‘comply or explain’ is to be effective. But it is important that the ESRB is not unduly constrained in its recommendations to national authorities. Take one example. Under the current proposed Capital Requirements Regulation maximum harmonisation would not only limit the countercyclical buffers that could be imposed, but would also limit the number of instruments at the ESRB’s disposal. In certain situations such a toolkit could be too weak or too restricted to prevent a build-up of excessive risk and leverage. It would be peculiar if one European body inadvertently prevented another from carrying out its remit.

Third, the ESRB will have to co-operate closely with the three European Supervisory Authorities, and my colleague Andrea Enria will say more on this.

Let me conclude by saying that, in my role as vice Chair of the ESRB, I am fully committed to assess the risks to EU financial stability and, more importantly, to act upon them. And I stand ready today to answer any questions you have about the work of the ESRB.


Introductory Statement by Andrea Enria.

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Filed under International Econnomic Politics, National Economic Politics

EU To Increase Bailout Fund, Brussels Demands More Austerity

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.”

Olli Rehn

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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Filed under International Econnomic Politics, National Economic Politics