EU’s Rehn Says European Economic Growth Prospects Have Worsened

European Union Economic and Monetary Affairs Commissioner Olli Rehn comments on the EU economic outlook and on a ruling by the German Federal Constitutional Court throwing out suits targeting Germany’s support for the rescues of distressed euro-area nations.

Rehn spoke to a European Parliament meeting and to reporters today in Brussels.

On the European economy:

“In the first half of this year, the EU economy continued its gradual recovery, although recently with a slower pace. After the strong GDP growth in the first quarter -- 0.8 percent quarter-on-quarter -- the second quarter recorded slower growth -- 0.2 percent quarter-on-quarter. And moreover, short-term indicators for the euro area point to a further moderation of growth.

‘‘All in all, the short-term growth prospects have somewhat worsened compared to our spring forecast. On the other hand, temporary slowdowns are in fact not unusual in recoveries that last for many years. In particular, this subdued recovery is not surprising in the aftermath of the financial crisis, given the continuing need for financial de-leveraging in the private and public sector.

‘‘However, what obviously makes the current situation worrisome is that the level of unemployment remains elevated and public finances are vulnerable to any slowdown of the economic recovery.

‘‘Stress in financial markets increased over the summer, leading to substantial volatility and occasional turbulence. The rough ride in the financial markets is a real test time for the euro area. The situation is serious and there is no need to pretend otherwise. Moreover, funding pressures in the EU banking sector have also risen.

‘‘What we seem to be going through is a more parallel performance of financial markets and the real economy. The financial markets and the real economy now move more in synchrony, and the continued financial turbulence is spilling over to and potentially harming the recovery of the real economy. This underlines the importance of containing the market turbulence to secure the economic recovery in Europe.

‘‘In order to do so, the euro-area summit took very important decisions on July 21.’’

‘‘Rapid implementation of these decisions is indeed essential, crucial for overcoming the debt crisis and restoring market confidence.’’

On the German court ruling:

‘‘It’s important that the ruling cleared the way for the efforts we are doing in order to safeguard financial stability.’’

‘‘It was based on very solid legal and constitutional work and, to my mind, it underlines that safeguarding financial stability is indeed a very important task for the European Union.’’

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net