ECB president Jean-Claude Trichet, Eurogroup chairman Jean-Claude Juncker and EU monetary affairs commissioner Olli Rehn testified in front of the European parliament’s economic affairs committee today on the euro area debt crisis.
At the meeting, Rehn warned that the rout in global financial markets posed a threat to the economic recovery in the European Union. (via AP):
“The financial markets and the real economy move now more in synchrony, which makes me seriously concerned about continued financial turbulence spilling over to and potentially harming the recovery of the real economy.”
Trichet echoed his sentiments and warned that economic recovery in the Euro region was slowing (via AFP):
“Looking ahead, we continue to see the euro area economy growing at a modest pace in a context of overall relatively sound economic fundamentals for the euro area as a whole,” Trichet said.
At the same time, not least because of the recently re-emerged tensions in financial markets, uncertainty remains particularly high.
This mainly relates to ongoing fiscal and economic adjustment in a number of euro area countries and most other advanced economies, as well as the overall outlook for the global economy.”
Rehn also said investors shouldn’t expected Eurobonds any time soon since they would have to be accompanied with major fiscal and policy reforms.
Greece and European banks
Juncker gave officials an update on the Greek bailout. He said that Finland’s demand for collateral wouldn’t hinder a bailout deal and added that he expected on in coming days or weeks. In the interim, Finland proposed that Greek state assets should be moved to a Luxembourg-based holding company and held as security for new loans to Athens. Greece has been against the deal because it could lose sovereignty of its assets.
All three said European governments needed to move quicker to implement the second Greek bailout and approve plans for the Eurozone rescue fund. The ECB began buying Italian and Spanish bonds in the secondary market on August 8, but Trichet wants the EFSF to take over that responsibility.
Meanwhile European officials insist that Europe’s banks do not need to be re-capitalised after IMF managing director Christine Lagarde called for an ‘urgent’ recapitalization of Europe’s weakest banks. Rehn’s spokesman said that recent stress tests shows that European banks were much better capitalised than they were in 2010.
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