Euro-area efforts to fight off banking and sovereign-debt crises are starting to work, five officials from the bloc said as they prepared to explain what they’re doing to end a recession and stabilize financial markets.
Dutch Finance Minister Jeroen Dijsselbloem, the Eurogroup’s president, defended the 17-nation region’s strategy in a joint opinion piece with European Central Bank Executive Board Member Joerg Asmussen, European Economic and Monetary Policy Commissioner Olli Rehn, European Stability Mechanism chief Klaus Regling and European Investment Bank President Werner Hoyer. The op-ed was published on the website of the New York Times.
The article appeared as finance ministers from around the world travel this week to Washington to discuss policies aimed at sustaining a global recovery and strengthening financial systems from more bouts of instability. The main challenge facing the world economy is “still very much in Europe,” International Monetary Fund Chief Economist Olivier Blanchard said earlier this week.
Measures such as the ECB’s bond-buying program, widespread fiscal consolidation and increased EIB lending are leading toward a “lasting correction of imbalances,” the European officials said. The euro zone also has agreed to put the ECB in charge of bank supervision and is now working on common tools to handle failing banks, accompanied by a separate effort to make direct bank aid possible from the bloc’s firewall fund.
“The evidence is clear that our response to the crisis is supporting the rebalancing of the euro-zone economy and has ensured the integrity of the euro,” the officials said. “This response to the crisis has delivered results.”
Five euro-area nations have so far sought bailouts during a financial crisis that has left 19 million workers without jobs and required trillions of euros in financial-sector assistance. The euro area’s response has focused on reining in national debts, even as forecasts project that 2013 will bring a second straight year of economic contraction.
European stocks declined for a fourth day, with the benchmark Stoxx Europe 600 Index falling to its lowest level this year. The euro weakened as Germany’s central bank chief Jens Weidmann reportedly said European policy makers may cut rates if needed.
The IMF two days ago lowered its global growth forecast and called for the ECB to purse an“aggressive monetary” policy. The fund projected a 0.3 percent euro-area contraction this year, accompanied by a global growth forecast of 3.3 percent that was down from a prior estimate of 3.5 percent.
“A key action needed is to fix the euro area, to fix it once and for all,” Jose Vinals, the director of the IMF’s monetary and capital markets department, said at a press conference in Washington yesterday.
Yesterday’s op-ed was the first time the five authorities have spoken jointly and will be followed by a Brookings Institution event in Washington today featuring the same officials. The appearance dovetails with the April 19-21 meetings of the IMF and World Bank, along with a meeting of the Group of 20 industrial and developing economies.
In Washington yesterday, U.S. Treasury Secretary Jacob J. Lew said the recent turmoil in Cyprus highlighted the need for “redoubling efforts toward a full banking union.” He cited stronger demand in Europe as a “critical” component to global growth and cautioned against too much austerity too quickly.
“We have no fundamental disagreement that many countries in Europe have to get their fiscal house in order,” Lew said in response to questions after a speech at Johns Hopkins University. “The disagreement we have is the timing and the balance. The speed of deficit reduction has created real constraints on demand in some places that we think has actually made it harder to achieve the fiscal goals.”
The euro-area officials said their strategy will take more time to see fruition and remains consistent. Already, both Ireland and Portugal are on track “to sustainably regain market access within the next 12 months,” they said.
“Not everything is in its right place yet, and the necessary adjustment is bringing serious social challenges, notably in the form of unacceptably high unemployment,” the op-ed said. At the same time, “with this approach, the euro zone has shown a degree of resilience and problem-solving capacity that many observers and policy makers would not have predicted even a year ago.”