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EU debt crisis gravest since World War II, warns Trichet

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EU debt crisis gravest since World War II, warns Trichet
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Europe’s debt crisis shows no signs of ending any time soon. With frightening speed the turmoil engulfing the euro zone has spread to Italy and Spain.

There have been calls for a radical cure, notably eurobonds. However, the EU Commission’s finance chief Oli Rehn admitted at a meeting in Brussels this week that such a solution would not be immediate.

“Eurobonds, in whatever form they were to be introduced, would have to be accompanied with a substantially reinforced fiscal surveillance and policy coordination, as an essential counterpart so as to avoid more hazard and ensure sustainable public finances,” Rehn said.

The increasing uncertainty surrounding the euro has led to sustained and successive attacks on the world’s financial markets. Despite that, European Central Bank President Jean Claude Trichet told euronews’ Fariba Mavadat that the single currency remains strong.

“The euro is a very solid currency, which has kept its value remarkably over time, its domestic value and international value. Nobody is challenging the euro as a currency. If the euro as a currency was challenged, you would not see what you observe in the markets. On top of that, if I take the euro area as a whole, it has from the fundamental stand point a very solid situation, for instance, only to give you an example. As regards the public finance deficit, in the euro area as a whole, we probably have 4.5 percent of GDP of deficit when it is 10 percent in the US, 10 percent in Japan, and large numbers in other advanced economies. So what we have in the euro area is the problem of credibility of some signature not problems for either the euro area as a whole on a consolidated basis or for the currency, of course.”

euronews: ‘‘It looks as if the public are losing faith in their governments, in their leaders, and they feel that the world is run by finance and credit agencies.’‘

Trichet: ”All governments, in Europe in particular, are trying to cope with a situation which is obviously difficult. We are experiencing an episode in the history of the world which is very very special. It is the gravest financial crisis, economic crisis, since World War II, so it is something which is big. It is big in Europe, it is big in the US, big in Japan, big in the rest of the world. And of course we have to improve the situation, we have to draw all the consequences from this crisis, in all domains, including of course the financial markets and financial sector domain, where a lot of reform has to be implemented very rigorously. In Europe in particular, then we have the problem of improving our governance.”

euronews: ‘‘Would it solve the problem if one or two weaker economies in the euro zone would opt out of the membership?’‘

Trichet: “Those who behaved improperly in the past have to correct their trajectory. It is very interesting to see today what are the best advanced economies in term of resistance to the crisis in the world. If you look out of the euro area, you have Canada. Canada had dramatic problems in the 90s, you have Sweden and the Scandinavian countries because they had dramatic problems at the beginning of the 90s. So, when you have a problem, you draw the consequence, you correct the trajectory and you are much more resilient.”

euronews: ‘‘The rating agencies that have proved to be problematic, how do you reign them in?’‘

Trichet: “Again, it is an issue at a global level. It is clear that we have an oligopolistic structure with a very few number of institutions that exert influence on a very very large number of markets and market participants and of financial institutions, but there is no quick fix in this domain, so we have to resort to remaining prudent.”