Rehn: No euro crisis; fiscal stability the problem in eurozone

Optimism that the euro-zone and Europe will successfully cope with the problems they face vis-à-vis the ongoing debt crisis, as well as strong concern over the way this will be achieved, was expressed by EU Commissioner for Economic and Financial Affairs Olli Rehn and Greek Finance Minister George Papaconstantinou on Thursday, both keynote speakers at the Economist conference entitled “Keeping the euro alive: Greece’s economic recovery”.

Rehn stressed that the current situation is not a euro crisis but one fiscal stability problems in the euro-zone.

He acknowledged that there is a deeper crisis in Europe, considering that Greece is not the only country with problems and stressed that the implementation of radical measures aimed at improving the economic governance of the euro-zone is necessary to solve these problems.

“There has been no major progress on this issue,” he said, adding that “we have come a long way since last spring but still we have not reached our goal”.

“Very strong will and a sense of a common goal and responsibility on behalf of the European political leaders, the central bankers and all the Europeans, the entire society of the citizens, is necessary in order to get there,” he said, stressing, however, that “we have the determination to materialize what the founders of the Treaty of Rome had envisioned.”

Responding to question on whether measures should be implemented in the case countries like Germany, with surpluses in their current accounts balance, and not just in the case of countries with deficits, Rehn stated that “we should consider both sides of the coin”, adding that the problem in Germany is being dealt through increased domestic demand.

Papaconstantinou opened his speech by stressing that Greece found itself in the “eye of the storm” as a result of the macroeconomic mismanagement of recent years and because of the lack of credibility in its statistical figures, as well as euro-zone weaknesses, as he said. “In a way, Greece became an example of the euro-zone system’s weaknesses.”

He underlined that the discussion in Europe on overcoming the debt crisis should focus more on the issue of economic growth and expressed doubts on whether the crisis could be faced if all Euro-zone countries proceed simultaneously with deficit reduction programmes.

“Under the present circumstances only a few countries have the luxury not to resort to restrictive policies and Greece is not among them because over the next few years it will have to implement a tough fiscal adjustment policy which is totally unavoidable and eventually will lead to growth,” he said.

“However, this is not the case with all EU countries. Therefore, we should find a balance because there is always a risk that a fiscal adjustment – in which everybody will hit the breaks at the same time – could lead the euro-zone to a slowdown that will not allow us to solve our fiscal problems,” he added.

Referring to the developmental policy, Papaconstantinou underlined the importance of Euro-bonds and their dual role namely, in the financing of major investments and coping with the debt problem.

Responding to a question if he would have preferred Greece not joining the EMU in 2001 via “creative accounting”, Papaconstantinou dismissed the insinuation and responded negatively, stressing that this was not the case for Greece, considering that the same rules were in effect for all participating countries.

“The euro was a positive development for Greece because it helped investments and led to increased incomes,” he said, adding that “we should not blame the euro for the economy’s structural problems. The alternative would have been a weaker national currency that would have led to low living standards,” he said.