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Brussels Economic Forum: Gurría says most risks to global economy on downside; Schäuble says no crisis of euro but crises in individual countries
By Finfacts Team
May 18, 2011 - 3:53 PM
German finance minister, Wolfgang Schäuble, is on the near right. In 1990, the then federal interior minister survived an assassination attempt.
Brussels Economic Forum: Almost all the risks to the global economy are the
downside, Angel Gurría, the head of the Organization for Economic
Cooperation and Development (OECD) said Wednesday.
Also in Brussels, Wolfgang Schäuble, German finance minister, said "we are not experiencing a crisis of the euro, but various crises
in individual countries that belong to the Euro area."
"The outlook is surrounded by risks,"
Gurría said at
today's forum.
"Unfortunately at this stage, most risks are on the
downside," he said, referencing further increases in
commodities could feed into core inflation.
The
secretary-general said risks included the effects of Japan's
tsunami on the world economy, the risk of a deeper
slowdown, an "unsettled" fiscal situation in the
United States, risks in some housing markets and
possible "pending surprises" from financial
institutions, particularly in Europe.
"Our concern is that the downside risks interact
and their cumulative impact could weaken the
recovery significantly, possibly triggering
stagflationary developments in some advanced
economies," Gurria said.
Gurría
warned that the Eurozone's pace of growth over the
next 15 years will be around half of what it
was in 1995.
Wolfgang Schäuble, the German
finance minister, gave
a lecture in memory of Tommaso Padoa Schioppa, a former finance minister of
Italy and a founding executive board member of the European Central Bank. who
died last year.
Dr. Schäuble said: "The first point I want to make is that, at
the heart of the matter, we are not experiencing a crisis of the
euro, but various crises in individual countries that belong to
the Euro area. These crises were caused by the individual
countries’ erroneous economic and fiscal policies, as in the
case of Greece, or were caused by a banking system going off the
rails, as in Ireland.
Let me repeat that: We are faced with
sovereign debt crises in individual countries, and not with a
currency crisis. This is demonstrated by the simple fact that
the external and internal value of Europe's common currency –
despite all the turbulences – has remained impressively stable."
He said he is convinced that we
cannot do away with the threat of higher interest rates for
spendthrift states. If we did, it would shut down the premise by
which the Stability and Growth Pact operates.
"Besides, I firmly
believe that it would be a disastrous signal to send to the
financial markets. They would immediately interpret it as
meaning the euro would now cease to be a stable currency. For
this reason, I am convinced that we cannot do away with the
threat of higher interest rates for profligate states."
The finance minister said that putting all the blame for what went wrong
on financial markets would be convenient, but far too easy.
Because it is also true that the financial crisis of 2008 and
the ensuing recession can only go so far in explaining the high
levels of indebtedness of some Eurozone countries. The
inconvenient truth is that a number of European countries lived
well beyond their means over the past decades.
Dr. Schäuble added: "It is worth remembering that the
European Monetary Union was not intended to be a quick fix for
Eurozone members or ‑ - for that matter ‑
- a get-rich scheme for
financial speculators. It was not meant to be a system of
redistribution from richer to poorer countries via cheaper
borrowing for governments by means of common Eurobonds or
outright fiscal transfers. European Monetary Union won’t succeed
if a number of countries persistently run deficits and weaken
their competitiveness at the expense of the euro’s stability."
At today's forum, Angel Gurría said
it is ''not logical" that Ireland should pay a higher or onerous interest
rate for its bailout.
Speaking to RTÉ News he also rejected the notion of a quid pro quo from Ireland
relating to corporate tax in exchange for a lower interest rate.
"In the end countries which are in trouble have to be supported in terms that
are consistent with their ability to pay.
"It's not a very great logic for a country applying the (EU-IMF) adjustment
programme to be kept at higher or more onerous interest rates. That only makes
things worse," he said.
Greece Deficit and UK's Market Reaction: The IMF's mission chief in Athens makes comments today on Greece's debt. Insight on how the markets will react, with CNBC's Ross Westgate and Carolin Schober:
