Rehn insists Greek and Irish cuts are essential and will work
Published 03/05/2011 | 05:00
THE EU's economics chief has scotched rumours that the EU-IMF bailout programmes are failing in Ireland and Greece, insisting that ambitious cuts, tax rises and bank repair are essential for their success.
Olli Rehn also rubbished the prospect of a Greek debt restructuring, warning that it would be potentially "devastating" for the country and the single currency bloc.
He was responding to comments by the German finance minister that additional measures will have to be taken should the Greek debt mountain prove too large.
"The proponents of debt restructuring seem to ignore the potentially devastating financial stability implications for the country itself and the euro area as a whole," Mr Rehn said at a Brussels conference on financial stability yesterday.
"Debt restructuring is not part of our strategy and will not be."
He said that the sovereign debt crisis had been contained to the "three more vulnerable countries" of Ireland, Greece and Portugal and that the rescues would only prove successful once "very ambitious fiscal consolidation programmes, structural reforms and financial sector restructuring" are fully implemented.
Athens last week revised up its 2010 budget deficit to 10.5pc of GDP, the second highest in the bloc after Ireland, which missed its target of 9.4pc.
The country's overall debt in 2010 stood at 142.8pc of GDP -- around €320bn -- trumping Italy, Belgium and Ireland.
The man tipped to be the next head of the ECB, Italy's central bank governor Mario Draghi, said at the conference that the EU should provide a definition of which creditors should be forced to take a hit during future banking crises.
"Any toolkit of resolution should include bail-in powers to ensure the costs of such failures are met by shareholders and creditors rather than taxpayers or the wider financial system," he said.
The ECB resisted attempts by the Government to force senior bondholders to share in bailout costs, but the EU has said voluntary restructuring will be a condition of EU-IMF rescues after 2013.
Meanwhile, a Fine Gael MEP yesterday raised the issue of long-term funding for Ireland's banks with Bank of England governor Mervyn King at a forum in Brussels. Gay Mitchell said Mr King had accepted that it would be better for the banks to have longer-term funding.