Brussels, 20/01/2009 (Agence Europe) - Euro area finance ministers, meeting in Brussels on Monday 19 January, discussed the sombre prospects for 2009, and delivered a number of messages. According to its president, Jean-Claude Juncker, the Eurogroup “is in general agreement” with the economic forecasts presented by the European Commission earlier in the day. These forecasts were “not good” and were “adjusted, though only slightly, by a number of countries and particularly on the scale of the recovery in 2010”, he told press.
Benefits of Stability Pact in face of crisis. Luxembourg Prime Minister and Finance Minister Juncker said that the Stability and Growth Pact (SGP) should be used to manage the budgetary consequences resulting from the crisis. Thus, the SGP would not be sidelined, he repeated. The exchange of views among the 16 ministers allowed him to “reaffirm the need to comply with all the measures of the SGP and, in particular, with those that were added during its recent reform in March 2005”. “We need the SGP and the new working framework that has to be brought to it since its March 2005 review. It contains everything we need to apply it more flexibly”. The euro area is the only currency area in the world that does not have a central government, he went on, and it must, therefore, “have a corpus of rules which have to be observed by all and we intend to make sure this is the case”. At the moment, the euro area also has a “collective obligation” to provide itself with “a strategy for getting out of deficits and increased levels of debt” - one way of looking at drafting a new objective for a return to balance, when the time is right, after exceeding the deadline set by the 2007 Berlin agreement. For the time being, “we are not giving up the aim of consolidating our public finances, we are keeping a close watch from within the raft of rules which the reformed Pact puts at our disposal,” Juncker stated.
State recovery plans satisfactory. After assessing the various economic packages adopted by member states for recovery, Juncker stated that they were “all in line with the main priorities of December's European Council, both in terms of direction and volume”. On Monday morning, European Economic and Monetary Affairs Commissioner Joaquin Almunia had said that the state recovery plans were sufficient, and in this assessment he was joined by Juncker following the Eurogroup meeting. If budgetary incentive packages, the effect of automatic stabilisers “which play a significant role in Europe” and non-budgetary measures were to be included, there would be a level “far above 1.5% for the whole of the area,” he said. “We believe, then, that, on this point, we have done what had to be done,” with no minister arguing for a greater level of intervention that that decided on until now. The crisis, however, could give reason for hesitation. Germany, especially criticised for the perceived lack of ambition of its first recovery plan worth €31 billion, had been less inclined than some of its partners publicly to consider any further intervention before finally presenting its second package worth €50 billion. This course of action was welcomed by Juncker. If the first plan is added to the second, the German programme corresponds to what we expect of Germany, he said.
Disparities in rates for state borrowing. Developments with regard to these disparities were being closely followed, Juncker said quite simply of something that could affect the cohesion of the euro area. The rise in deficits and debt over the last few months could hamper some member states' financing capacity, with the cost of borrowing on bond markets rising. With markets assessing the risk of states' defaulting, there were widening disparities between the rates to be paid for borrowing by the various euro area countries. Following Greece, Spain saw its financial rating by the Standard & Poor's agency fall on Monday, increasing the difference that exists between the most virtuous countries (Germany remains the reference) and those which are less so and which must, therefore, pay more (with the risk of further worsening their public finances). On Monday, the Eurogroup had not considered issuing joint European bonds to some countries, Juncker said, although he was hopeful that the idea might gain ground. “We hold differing points of view on this, but it is usual for us to have differing points of view on certain issues and the time will come when our points of view will come closer together,” he hoped. Common management of public debt would mean risk sharing, something to which Germany in particular is not prepared to agree because it would cause it to lose its current benefits in terms of borrowing rates.
Call to credit sector. Concerned that credit is becoming more difficult to obtain, Juncker called on the banking sector to give the real economy better support. “We have seen a number of improvements, but they don't seem to us to go far enough,” he observed, calling on the credit sector to “come up with the goods when companies, especially SMEs, turn to it” because “the economic packages will not bring the expected results if the credit sector does not react better to the challenges facing it. Credit has to circulate!” (A.B./transl.rt)