Sutherland notes market change on future of euro
He says EU needs €2 trillion bailout fund and Ireland must accelerate its fiscal correction
Published 23/09/2011 | 05:00
MARKETS may be starting to think twice about betting on a failure of the euro, the European chairman of investment bank Goldman Sachs said yesterday.
Peter Sutherland, a former EU Commissioner, told a meeting at the Institute for International and European Affairs in Dublin that Ireland should make the most of improving market sentiment by accelerating its process of fiscal correction.
"Some market participants may intend to blow up the euro and have a 'Soros moment,'" Mr Sutherland said, referring to financier George Soros' successful bet on sterling being forced out of the European monetary system.
"But they must also be looking at the possible quadrupling of the European Financial Stability Fund -- perhaps to €2 trillion -- and seeing the ECB buying bonds . . . behaving like the Fed . . . and also asking, 'Can we rely on the system imploding?' They may be coming to the conclusion that they can't."
Last night European officials said governments may leverage the region's bailout program to erect a "firewall" around the sovereign debt crisis once a revamp of the fund is completed.
"To stabilise the euro zone, we need the right firewall to prevent contagion," French Finance Minister Francois Baroin told reporters in Washington before the Group of 20 meeting. The firewall is the European Financial Stability Facility, and "we can discuss how to give it the necessary strength, about using the power of leverage to give it systemic force," he said.
European parliaments are now focused on approving a July plan to expand the remit of the €440bn EFSF to allow it to buy the debt of stressed euro-area governments, aid troubled banks and offer credit lines. Its current role is to sell bonds to fund rescue loans for cash- strapped governments.
An analysis from the French investment bank Natixis yesterday showed the more positive attitude to Ireland, saying Italy could learn from Irish efforts to improve competitiveness. "We have seen that in Ireland there is simultaneously a pick-up in growth, elimination of the external deficit and an improvement in the public finances," the report said.
Mr Sutherland said changed perceptions gave Ireland a brief opportunity to put "clear blue water between itself and the other bailout countries and surprise the markets with its resolve.
"In fact, I agree with Jurgen Stark (who recently resigned from the ECB board) that the Government should capitalise on improving market sentiment towards Ireland by front loading cuts outlined in the bailout plan," he said. He added the fact that Ireland's budget deficit is actually bigger than those of Greece and Portugal showed that the basis for the developing market trust is fragile.
"It is the key responsibility of the Government to increase this trust if it can. I recognise that this is not an easy task . . . but there is no avoiding what we must do. We must deliver a budget deficit reduction of €3.6bn at the very least and preferably more."
In separate developments, trade unions yesterday repeated their opposition to increased austerity. Congress of Trade Unions economist Paul Sweeney said the forthcoming Budget must "significantly moderate" the austerity programme.