EU Debt Crisis Won’t End Without Debt Restructuring, Buiter Says

Europe’s debt crisis won’t be resolved until a number of country’s restructure their debt and clean up their banks’ balance sheets, Citigroup Inc. Chief Economist Willem Buiter.

“It won’t go away until Europe restructures a couple of sovereigns and deals with its dummy banks,” Buiter said today in an interview on Bloomberg Television’s “The Pulse” in London, adding that probably meant debt restructuring for Greece and Ireland, though not Spain. “All that’s been done so far is to kick the problem down the road.”

European Union leaders agreed at the weekend to increase the effective lending capacity of its bailout fund to 440 billion euros ($617 billion), a move Buiter said hasn’t solved the underlying problems that led to the crisis. Euro-area finance ministers meet in Brussels March 21 and EU leaders gather there again three days later to hammer out the details of their plan.

Buiter, a former Bank of England policy maker, said leaders who are refusing to soften the terms of the region’s aid package to Ireland risk forcing the country to restructure its debt unilaterally. While the bloc agreed to cut the rate it is charging Greece on rescue loans, Germany and France suggested Ireland would have to raise its corporate-tax rate before they would give it additional help.

“They have to come up with something for Ireland,” Buiter said. “They’re going to have to make concession or Ireland will have no option but to go it alone. The Europeans are playing with fire with this brinksmanship.”

Pressure

Irish Prime Minister Enda Kenny has so far refused to buckle under pressure from German Chancellor Angela Merkel and French President Nicolas Sarkozy as he pushes for relief on the 5.8 percent interest rate Ireland is paying on the 85 billion- euro rescue package it received in November.

Irish Finance Minister Michael Noonan said March 15 that raising the corporate-tax rate, which at 12.5 percent is about half the EU average, is “out as far as we’re concerned.”

Buiter also said that Mario Draghi is the most qualified candidate to replace Jean-Claude Trichet as president of the European Central Bank later this year.

“In terms of personal skills and professional skills he’s clearly the man for the job,” he said.

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net; Maryam Nemazee in London at mnemazee@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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