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The Eurozone: No room for complacency
WASHINGTON, DC (October 10, 2013) – Market fears over an imminent collapse of the eurozone have subsided. Signs of recovery have emerged. Exports and domestic demand are increasing. Ireland is expected to begin exiting its support programs in the next few months. But the crisis is far from resolved. European financial institutions still face challenges to modernize the European social and economic model. “There is no room for complacency,” European Commission Vice President and Economic and Monetary Affairs Commissioner Olli Rehn warned at “Moving out of the Crisis: Europe’s Joint Response”. The Bertelsmann Foundation discussion in Washington, DC featured prominent members of the Eurogroup.
Mr. Rehn was joined by European Central Bank Executive Board Member Jörg Asmussen, European Stability Mechanism (ESM) Managing Director Klaus Regling, and European Investment Bank President Werner Hoyer. Zanny Beddoes, economics editor of The Economist moderated a discussion that covered the challenges overcome since the beginning of the financial crisis and the steps ahead for European Union economic policymakers.
Ms. Beddoes began the conversation referencing the current US crisis and how the eurozone could suffer potential ripple effects from a US default if Congress fails to reach an agreement on the debt ceiling. Mr. Rehn expressed concern over the gridlock, but he is hopeful that responsible and constructive policy making will prevail in the US, as it has in Europe.
Mr. Asmussen underscored the diverse approaches the US and Europe have taken in response to the financial crisis, citing the influence of US federal institutions. He suggested Europe needs similar institutions to ensure local crises do not become systemic threats. All agreed that the banking union could help serve such a purpose. Mr. Hoyer underlined that the progress of the banking union depends on its gaining member states’ confidence and trust.
The panel cited two major challenges beyond a banking union that the European Union faces over the next year. The first is working with countries participating in support programs. This entails ensuring a smooth exit for Ireland while monitoring the type of further assistance Greece requires. Second, European Union financial institutions must also work with member states to review fiscal policies and assist with structural reforms.
All panelists agreed that core member states must address their own reforms and continuing reforms in countries affected by fiscal and financial crises. Mr. Regling explained that economies move in cycles, adding it is incorrect to assume Germany will always “remain strong and the South permanently weak”. Mr. Hoyer noted that while Germany has experienced successful growth over the past ten years, it and other European countries must reform to remain competitive. No country wants to be known as the “sick man of Europe”, a label Mr. Asmussen reminded Ms. Beddoes that The Economist had given Germany over ten years ago.
The panelists hedged when asked what they would do differently with hindsight. Mr. Asmussen mentioned that policy options at the time were limited. Each concurred that it is always easier to offer recommendations retrospectively. Mr. Regling focused on the future saying there are a “few things we can do now” such as the banking union and “discussions yet to be had” on strengthening the European economy.
The leaders of key European financial institutions agreed that initiatives to stimulate further growth of the European economy remain necessary.