Thursday 17 April 2014
 
»
 
»
Story

Euro Zone's crisis 'far from over'

Paris, December 1, 2012

The euro zone's crisis is far from over and its members must tighten budgets and forge a banking union to leave behind the "fairy world" that allowed problems to grow, said European Central Bank (ECB) president Mario Draghi.

Draghi's call for reform was echoed by International Monetary Fund (IMF) chief Christine Lagarde, who said implementing a banking union with powers to supervise all banks in the euro zone should be the currency bloc's top priority.

Speaking in Paris, where the government is trying to dispel concerns raised by the IMF that France could be left behind as Italy and Spain reform at a faster pace, Draghi said the euro zone's debt troubles were likely to stretch deep into next year.

Another 173,000 people joined record jobless queues in the currency bloc in October while German retail sales and French consumer spending both fell more than expected, signs of the scale of the task still ahead for policy makers.

"We have not yet emerged from the crisis," Draghi told Europe 1 radio. "The recovery for most of the euro zone will certainly begin in the second half of 2013."

"The crisis has shown that we were living in a fairy world," Draghi later added at a conference with top financial officials, pointing to the unsustainable debts, weak banks and poor policy co-ordination that gave birth to the crisis three years ago.

ECB policy makers hold their monthly policy meeting next week and are widely expected to leave interest rates on hold at a record low of 0.75 per cent. Economists are divided on whether the central bank will cut next year and Draghi has said it is now up to governments to act to end the crisis.

He stressed that the ECB's designing of a new bond-purchase programme, dubbed Outright Monetary Transactions (OMT), had helped lead to much more benign market conditions in the 17-country euro zone.

Under the programme, the ECB is ready to buy potentially unlimited amounts of sovereign debt but until Spain - the prime candidate for help - applies for aid, it cannot use the tool.

Simply announcing the plan, however, has eased the pressure on Spain and Italy, cutting around two percentage points since July off the interest they pay bond market investors to borrow over 10 years.

Data yesterday showed Spain registered a capital inflow of 31 billion euros in September, the first time international investors had put more money into the country than they took out in 14 months.

"The confidence effect of the OMT announcement has been significant, and rightly so," Draghi said, before urging governments to push ahead with reforms in a speech.

Resisting fresh ECB action, Bundesbank chief Jens Weidmann said central bankers had done more than enough to fight the crisis and it was now up to governments to act by reforming their economies and making the banking sector solid.

Draghi urged euro zone governments to push ahead quickly with implementing a banking union which he said must apply to all banks to avoid fragmenting the sector.

His position puts the ECB, which would take on the role of pan-European banking supervisor, at odds with Germany. Berlin has said that unified banking supervision under the aegis of the ECB should apply only to the bloc's largest banks.

Lagarde pressed for swift implementation of a banking union that would have powers to supervise all banks in the euro zone.

"Banking union seems to us to be the first priority," Lagarde said during the meeting in Paris, adding that closer budgetary consolidation should be next.

The economic situation in the euro zone remained fragile and governments should maintain a "reasonable" pace of budgetary consolidation to avoid crimping growth, she added.-Reuters




Tags: Europe | jobless | Crisis |

More INTERNATIONAL NEWS Stories

calendarCalendar of Events

Ads

Buy high quality China wholesale Health & Beauty , Electronics, Sports & Outdoors , Computers, Video Games, Toys & Hobbies Cell Phones, Automobiles and other wholesale products directly from reliable Chinese wholesalers or Factories on DHgate.com