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Financial markets must wait for reforms to take effect, urges Rehn

financial crisis

THE eurozone's financial crisis isn't over and financial markets should wait for the reforms to take effect, EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday.

"The crisis has damaged the European economy and affected the jobs and the welfare of Europeans, and this crisis is by no means behind us," Mr Rehn said.

"It will take time, structural reforms often take a long time. Markets, however, tend to be impatient and this impatience can push sovereigns or banking institutions into a liquidity crisis."

The commissioner added that Greece was close to a deal with bankers on the scale of the haircut which would be imposed on lenders. Some reports have suggested that the talks, which have been dragging on for two months, are close to failure.

"We are about to finalise shortly negotiations on private-sector involvement, which is a necessary condition for the second programme," Mr Rehn told the European Parliament.

"It is not going to be easy but I am reasonably confident we will achieve this aim."

Greek officials are talking to private-sector bondholders on a debt swap crucial to a second bailout package for Athens.

The IMF and European Commission won't lend to Greece under a fresh bailout agreement until a deal has been agreed.

Greece's deputy finance minister, Filippos Sachinidis, said yesterday that there was progress but no deal yet in the bond-swap talks with creditor banks and reaffirmed Athens' aim for a voluntary accord that made the country's debt sustainable.

The voluntary accord, hammered out by European Union leaders, Greek officials and creditors last October, called for bondholders to accept a 50pc cut in the face value of their Greek debt to reduce Greek borrowings to 120pc of gross domestic product by 2020.

More than two months after the accord was announced, creditors and authorities still need to agree on the coupon and maturity of new bonds to determine the total losses investors would suffer.

Failure to complete the voluntary swap threatens to further undermine confidence in the EU's crisis leadership and deter investors from Asia and the US from buying Europe's debt.

Separately, in a letter to EU partners and the European Commission, Hungary's foreign minister said the government was ready to consider modifying disputed legislation if the commission deemed it necessary, raising hopes in market players that Hungary was inching closer to a new agreement.

"We stand ready to consider changing legislation, if necessary. This has never been and will not be a matter of prestige for my government," Janos Martonyi said in the letter published by his ministry yesterday.

A new IMF/EU funding deal is crucial for the country to keep financing its debt from markets, after serious policy mistakes by the conservative government that have undermined investor confidence and sapped its popular support.

One of the key issues at the negotiating table will be a new law affecting the central bank, which the IMF and EU said infringed the bank's independence, and which led to a breakdown of earlier talks in December.

Mr Rehn will meet Hungarian officials late next week. (Reporting by Bloomberg and Reuters)

Irish Independent