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EU Makes Progress on Economic Governance

Europe is “fixing” its lack of economic governance and will survive the region’s debt crisis, Greek Foreign Minister Stavros Lambrinidis said yesterday in a speech in New York.

“Europe has to become more political, more economic and more united,” Lambrinidis said at the Foreign Policy Association’s 2011 World Leadership Forum dinner in New York. “We know what was lacking and we’re fixing it now.”

European Central Bank president Jean-Claude Trichet proposed in a June 2 speech a “major strengthening of the rules and organizations” including power of veto for European institutions over the budgets of countries in crisis and the creation of a regional finance ministry to monitor policy making. European leaders are squabbling over the terms of a July 21 agreement for a second Greek rescue and the prospect that they will be forced to channel more money to keep Greece in the currency union.

Greece has cut its deficit, though the spending reductions caused a recession that has shrunk the nation’s tax revenue making it more difficult to achieve its fiscal goals, Lambrinidis said. European countries and the U.S. should consider taxing financial markets, which made “major miscalculations” that contributed to the global financial crisis in 2008, to provide revenue to narrow budget deficits, he said.

‘Find New Sources’

“It’s very difficult to close that gap if you don’t have enough earnings,” Lambrinidis said. “How do you infuse more money into economies that cut, cut, cut? The answer is you need to find new sources of revenue.”

Greek Finance Minister Evangelos Venizelos made “good progress” in a second round of talks yesterday with the European Union and International Monetary Fund aimed at staving off default, the EU said.

Talks on the Greek aid payments resumed after IMF and EU monitors earlier this month suspended the review for a sixth tranche of loans following the discovery of a hole in the budget.

The austerity measures demanded in return for the emergency loans are deepening a three-year recession, making it harder for the government to meet the deficit goals laid out in its aid package. The IMF’s representative in Athens Bob Traa said Sept. 19 the economy will shrink 5.5 percent this year and another 2.5 percent next year, before growth resumes in 2013.

Preliminary numbers showed the deficit widened 22 percent to 18.9 billion euros ($26 billion), more than the target of 18.1 billion euros for the period. Greece pledged to reduce its deficit to 7.6 percent of gross domestic product this year from 10.5 percent in 2010.

“We know we have a long ways ahead of us, many years of pain,” Lambrinidis said. “However, both us, the euro zone, and Europe will survive this crisis.”

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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