EUROPEAN COMMISSION:EUROPEAN ECONOMIC and monetary affairs commissioner Olli Rehn, who broke off his summer holiday and returned to Brussels, has said the EU should keep adapting its financial rescue fund to make it credible and, in the longer term, consider common euro zone bonds.
“To be effective, the EFSF [European Financial Stability Facility] needs to be credible and respected by the markets. And therefore we need to be continuously assessing it, once up and running in its objective form, with these goals in mind,” Mr Rehn told BBC radio.
Voicing a personal view not shared by all his ECB colleagues, governing council member Luc Coene of Belgium also said Europe should move in the direction of common European bonds.
“It’s the direction in which we need to go. You need to bring all of these problems of sovereign debt to the European level. We will never get out of it if we leave that at the national level,” he said.
EU heavyweights Germany and France have so far opposed any common debt issuance, arguing that it would remove a key driver of fiscal discipline in individual member states and push up their own borrowing costs as AAA-rated sovereigns.
Earlier Mr Rehn said the financial markets had not reacted as European leaders had hoped to the second Greek rescue package and plans for a revamped bailout mechanism. “Markets have not reacted as we expected or hoped for to the measures agreed by euro-area heads of state and government on July 21st,” he said yesterday.
“The spread of bond-market tensions across the euro area is, however, not justified by economic and budgetary fundamentals.”
The July 21st agreement will take time to implement, though markets expected immediate action, Mr Rehn said.
“There were expectations in financial markets that all elements could be implemented immediately. While these expectations were clearly unrealistic, markets have nevertheless been disappointed.”
Mr Rehn said the European Financial Stability Facility was “still a work in progress” and that “a certain problem of communicating” had hampered efforts to tackle the euro area’s debt crisis in recent weeks.
The EU’s main bailout mechanism should be reinforced and its scope widened, but the commission is largely satisfied with the plan reached last month to revamp the rescue mechanism, Mr Rehn said.
The commission’s view is that Italy and Spain are on track to meet their fiscal-deficit targets this year and next.
Cyprus has sound economic fundamentals and its banks are well capitalised, Mr Rehn also said. The Cypriot government should stick to its budget-deficit reduction targets, he said, adding that he would try to speak today to country’s new finance minister, Kikis Kazamias.
