Saturday, 16 April 2011

EU´s Rehn bullish about the euro

Olli Rehn, EU commissioner in charge of Economic and Monetary Affairs, speaking at the Brookings Institute in Washington DC, was very upbeat about the euro:

While I cannot yet say "mission accomplished", I am increasingly confident that we are entering into the endgame of the crisis management phase.

The European financial stability mechanism and facility are in force until mid-2013. After that they will be replaced by a permanent European Stability Mechanism (ESM), which will safeguard financial stability in the euro area. It will contain three elements: financial assistance, an adjustment programme and a possibility for private sector involvement, based on an analysis of debt sustainability.

What has been achieved with these arrangements? By providing conditional financial assistance to soon three EU Member States, we have prevented financial chaos in Europe, which could have had potentially serious global repercussions. Preventing a European Lehman has not been a simple task, with 27 fiscal authorities and 11 central banks – we never had the genius of Alexander Hamilton to draw on, like you did, unless you count Jacques Delors for this too – but the task has nevertheless been accomplished.
But let me be clear, the euro is not on the list of problems. Instead, it is an essential part of the solution. It contributes to growth by enhancing cross-border economic activity and competition, and is essential for macro-economic stability.
Lastly, let me recall that the euro is not just a technical monetary arrangement, but rather the core political project of the European Union.  As such, it is a symbol of our political will and determination to work together for our common good.
That is a further reason why it is worth taking Europe seriously when we say that we are ready to do whatever it takes to defend the euro and financial stability in Europe.

Read the entire speech here

Rehn´s bullishness is not shared by everybody:

Also speaking in the US capital at the annual spring joint meeting of the IMF and the World Bank, the president of the international lender, Dominique Strauss-Kahn said that the world should not be complacent and that the European response to the crisis is insufficient.
"We are arguing here in the IMF for at least six months that there is a need for a more comprehensive plan on the European side. The piecemeal approach, dealing with interest rates one day and something else another day, is not working well," he said.
He warned that bailed out countries needed to stick to their agreed austerity plans and that European banks still require recapitalisation.

Read the entire article here

The Wall Street Journal reports:

The majority of euro-zone countries believe a restructuring of Greek debt is inevitable and could happen next year, two senior euro-zone government officials familiar with the matter said Thursday

"There is widespread belief inside the euro zone that a Greek debt restructuring will happen some time next year. The European Central Bank and the International Monetary Fund believe the same," said one of the officials, who is directly involved in talks with the European Union and the IMF.

The markets did not either share Mr. Rehn´s bullishness:

The euro fell the most since November against the yen and dropped from a 15-month high versus the dollar on concern a bailout for Greece may fail to prevent the first default by a country in the 17-nation currency region.

Germany’s Zeit newspaper reported April 14 that a restructuring of Greek sovereign debt may involve imposing losses of 50 to 70 percent on investors. Ireland’s credit rating was cut two levels by Moody’s Investors Service to the lowest investment grade as the government struggles to lower the budget deficit and restore economic growth.

Read the entire article here

It is, of course, part of Mr. Rehn´s job to try to prop up the euro, but he does not increase his own - and the euro´s - credibility by painting a much too rosy picture. To boast that the mission (task) "has  nevertheless been accomplished" was not very wise. He may have to eat his words in the not too distant future.

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