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Rehn: Tackling sovereign debt 'first priority'

Rehn: Tackling sovereign debt 'first priority'
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Olli Rehn is the European Commissioner for Economic and Monetary Affairs, a key role in defining strategy against the back-drop of the debt crisis. The latest proposal concerns the recapitalisation of the banking sector. Dozens of banks would be forced to raise more than 200 billion euros according to initial studies, although some analysts say much more is needed.

With the European Bank Authority due to complete its assessment, euronews spoke to Olli Rehn.

euronews: “The President of the European Commission, Jose Manuel Barroso, presented a road map for the recapitalisation of the banks that are most exposed to the debt crisis. But don’t you think that Europe has reacted too slowly given the fact that the International Monetary Fund has been sending out warnings since the end of August?”

Olli Rehn:

“The European Commission called for a comprehensive crisis response already this year in January in our annual quarterly survey. In fact we started to work on this already at the end of last year. Then we were criticised by some, and not all the elements of this comprehensive answer have so far materialised, to say the least. But I am certain that we now need a comprehensive strategy to overcome the sovereign debt crisis and banking sector fragility in order to ensure sustainable growth and employment in Europe.”

euronews: “Can you give us an estimation of how much money is needed for the recapitalisation of the banking sector? How many banks are in danger?”

Olli Rehn:

“I will not go into exact figures at this stage. We know that it is a significant number, and we have proposed a recapitalisation plan in three steps.”

euronews: “Who has to pay for this recapitalisation of the banks?”

Olli Rehn:

“In the first place it is the private investors and capital markets that we expect banks to go to for capital. If it’s not possible, then member states will need to have national arrangements in place for recapitalisation, and/or restructuring of banks, and then as the third line of defence, we see that the European Financial Stability Facility could be used so that it could provide loans to governments.”

euronews: “Do you think that in the next stress tests for banks the scenario of Greek default should be included? It was not the case up to now.”

Olli Rehn:

“We are not assuming a Greek default. We see that it is essential to find and agree on a sustainable solution for Greece which implies also a second programme with adequate financing from the private sector, and from the official sector.”

euronews: “Unemployment in Greece is rising and is currently more than 16 percent. The number of suicides has doubled but given the deeper recession, the Troika said new measures are likely to be needed to meet the targets for 2013. Do you think that Greece can really face a new wave of austerity?”

Olli Rehn:

“We have created a Commission task force which works together with member states’ experts in order to provide technical assistance for Greece, in order to better use the structural funds for investments and growth enhancing purposes and to better reform its tax administration and improve its privatisation practices.”

euronews: “When do you think Greece could be competitive again?”

Olli Rehn:

“Greece is actually in some parts of the economy regaining competitiveness. The export sector is showing some small signs of improvements. It is essential that adjustment continues because unfortunately Greece was living well beyond its means and this needs to be corrected.”

euronews: “To solve the debt crisis the European Financial Stability Facility has a very important, strategic role but it doesn’t seem to be enough for this task. So we are talking now about leverage, meaning transforming this tool into a bank or an insurance company. What is the best option for you?”

Olli Rehn:

“We are not proposing an increase in guarantees but rather we are proposing that we need to make more out of the existing resources, to make them more effective so we can effectively contain the contagion that is going on in the European financial and sovereign bonds market at the moment.

“If you look at Italy, or to some extent Spain and Belgium, we see that the contagion effect is already in action. So that’s why we need to find a sustainable solution for Greece, because this is the source of contagion, and then at the same time we have to reinforce states’ financial firewalls and reinforce the capital buffers in the banking system so that we can ensure that credit flows to households and enterprises in Europe.”

euronews: “How disappointed are you to see a real slow down in the euro zone? You quoted Spain and Italy where growth is stuck in some way. Don’t you think there is a need to review this austerity plan that Europe has put in place?”

Olli Rehn:

“I’m disappointed that we let this market turbulence intensify because we could have stopped it by having a comprehensive strategy to tackle the crisis decided already at the beginning of the year, and then if we had consistently implemented it.

“If we had acted earlier in the curve, we could have prevented much more of this turbulence and protected the economic growth and employment much better than has been the case. Now we unfortunately see that market turbulence is taking a heavy toll on economic growth and employment. That’s precisely the reason why the first and foremost solution in this context is to contain the sovereign debt crisis with decisive action.”

euronews “So in a way you are saying that Europe was slower than the markets. But now we are talking about a new European finance minister. What will be this minister’s job?”

Olli Rehn

“It is essential to reinforce economic governance further and in this field, I think the most important thing is how can we further improve policy coordination in Europe, so that we can complement the existing strong monetary union with a true and genuine economic union.”

euronews: “If it were offered to you, would you accept the job?”

Olli Rehn:

“I am not campaigning for this, I do not see any vacancy for the moment.”

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