Almunia defends EU financial crisis response

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Almunia defends EU financial crisis response

Almunia defends EU financial crisis response
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Difficult times for Europe’s Commissioner for Economic and Monetary Affairs. Spain’s Joaquín Almunia is being tested by the financial crisis, as are Europe’s strict economic rules. In addition EU member states are eager to assert their own strategies in the current financial climate.

Sergio Cantone/Brussels Correspondent, euronews: Commissioner, welcome to euronews: ‘‘The co-ordinated decision taken by central banks, including the European Central Bank and the US Federal Reserve, to cut interest rates — what does this mean for Europe and the world?’‘

Joaquin Almunia/EU Commissioner for Economic and Monetary Affairs: ‘‘Well, it’s supposed to relieve the stress being felt in the financial markets, and I hope the markets will respond to the move positively. Moreover, the coordination among the world’s most important central banks is good news. It’s a good sign for the market, and also a good example of governments improving their coordination.’‘

euronews: ‘‘Wouldn’t it have been better to be proactive rather than reactive, to have acted before the crisis got to this point?’‘

Joaquin Almunia: ‘‘There was a very low estimation of the real risks that pushed many investors to take chances beyond any reasonable level, because of the low level of interest rates before 2007. At this stage in the crisis the measures adopted by the central banks are supposed to relieve the market and ease the difficulties felt by the principal players.’‘

euronews: ‘‘Is a rate cut a good idea at the moment considering the state of the global economy?’‘

Joaquin Almunia: ‘‘At this stage it is essential to undertake a recapitalisation of the financial institutions, to allow those entities that have enough capital to resume their normal credit operations. It is also essential to create confidence among financial institutions, to put the inter-banking market back on track. Restoring confidence will lead to normalisation.’‘

euronews: ‘‘One idea has been to recapitalise the banks by creating a common European fund. Is that a possibility?’‘

Joaquin Almunia: ‘‘There are proposals for coordinated action between European governments to create funds at national level, and we discussed them in the last Ecofin council. But, nobody has talked about a European fund.’‘

euronews: ‘‘But aren’t some countries pushing for this?’‘

Joaquin Almunia: ‘‘Some people have interpreted the proposal made by the Netherlands and other governments as an attempt to create a centralised fund here in Brussels. But nobody made a proposal as such.’‘

euronews: ‘‘Would the creation of a single European fund with its own authority be a good idea?’‘

Joaquin Almunia: ‘‘Let’s be clear. We have to be realistic it’s no time for utopia. Each country allotting public or private resources is the most realistic proposal. If it’s co-ordinated it will increase the confidence among financial institutions that operate in a single market like the inter-banking one.’‘

euronews: ‘‘And savers deposits? What would you say to those people afraid of losing their savings?’‘

Joaquin Almunia: ‘‘Nobody will lose their savings, really. There are some financial institutions that have a few problems, but thanks to public money or to the take over of public and private institutions nobody has lost their deposit.’‘

euronews: ‘‘Is there enough money to guarantee all savers’ deposits at a national level?’‘

Joaquin Almunia: ‘‘There are enough instruments in place to avoid any financial institutions falling into a crisis like the Lehman Brothers in the USA. In Europe, we don’t want that scenario and and there won’t be a Lehman Brothers case. There won’t be a bank which will go bankrupt or disappear. That won’t happen.’‘

euronews: ‘‘Why haven’t the markets reacted to the measures taken by the central banks around the world?’‘

Joaquin Almunia: ‘‘There’s a deep lack of confidence amongst financial institutions, because of a lack of transparency. And every financial institution fears that the other banks that want to borrow their money are in a worse situation than themselves. Financial markets are built on confidence.’‘

euronews: ‘‘Do you expect finance to play less of a role in the future than it does now?’‘

Joaquin Almunia: ‘‘What we don’t need is for the logic of financial activities to lose contact with reality, lose perception of the risks and forget what actually brings in capital to allow such operations.’‘

euronews: ‘‘Doesn’t the huge injection of money by member states jeopardise the European Stability Pact?’‘

Joaquin Almunia: ‘‘The stability pact is alive and working, and it continues to work. In 2005 when the Stability Pact was reformed, some flexibility was put in place in case of economic slowdowns. We didn’t figure out then that we would have to go through such a difficult phase. Yet, the flexibility will be useful, because I know that some public deficits will grow, in some cases it is already happening. But I can tell you that there is a general consensus on the need to stick to the rules of budgetary discipline set out in the pact. It was reiterated in the last Ecofin council and also a few days ago at the Paris summit by the heads of state and their governments.’‘