Brussels, 11/01/2013 (Agence Europe) - The eurozone must not lower its guard in 2013, warned Euro Commissioner Olli Rehn in a speech to the European Policy Centre on Friday 11 January. He said that, although growth would gradually pick up this year and pave the way for a more robust upturn in 2014, the eurozone must keep up the pace of reform and pay attention to its competitiveness, his message complementing that of the head of the European Central Bank, Mario Draghi, the day before (see EUROPE 10761).
In order to nurture the return to growth, countries are urged to boost investment and entrepreneurship. A good mix of budget consolidation and growth stimulus will get things back to normal, he said. On the recent mea culpa by two IMF officials over mistakes in their austerity calculations (cuts in public spending having a much worse impact on GDP than initially thought), Rehn said that the Commission, ECB and IMF, lenders to struggling nations, were currently seeking “common ground” on this matter. An IMF report published last week highlights that the crisis is having a much more serious impact than forecast (see EUROPE 10758).
Commissioner Rehn did not deny the fact that austerity measures initially worsen the recedssion, but he said it was difficult to set out principles that apply to everyone. The“confidence effect”, which could cause borrowing rates to soar, also has to be taken into account. “Italy began to enact more solid and cautious consolidation measures from November, leading to a drop in bond yields that causes a return of confidence”, he said. He added that the impact of austerity measures is different for countries that can still roll over their very short-term loans on the money markets. Given the deterioration in the Greek economy, Europe has given Greece two more years, until 2016, to achieve its budget targets.
Spain. In response to a question, the Commissioner did not rule the possibility of Spain being granted the same terms as Greece it out. “If growth deteriorates unexpectedly, a country may receive extra time to correct its excessive deficit, provided it has delivered the agreed fiscal effort”, he noted. Once the winter forecasts have been published on 22 February 2013, the EU should be able to issue recommendations based on an assessment of the measures taken by member states, including Spain.
The Spanish authorities are still not calling for a full bailout. On Thursday, Madrid managed to issue its first bonds this year (€5.8 billion in two, five and thirteen-year bonds at 5.5% for the thirteen-year bonds) and the yield demanded on Spanish ten-year bonds has fallen back below the 5% level for the first time since April 2012. In 2013, Spain will need to borrow a total of €121 bn.
Things remain fragile and Rehn stressed that average public debt in the EU had increased from 60% in 2008 to 90% today, and there was still the same need to rein in public spending. Such levels of public debt damage economic dynamism, he argued, saying that despite some progress, the months to come would be difficult and “any lapse into complacency would be unforgiveable”. (EL and MB/transl.fl)