Euro area may deflate if no reform
By Aoife White |
April 16, 2010, Friday
|
Print Edition
Print Edition
THE European Union's economy commissioner warned yesterday that Europe's debt crisis could trigger deflation across the 16 nations that use the euro if Greece and others don't make tough reforms.
Olli Rehn said it wasn't enough for Greece and other "deficit countries" to reduce their budget shortfalls in coming years and not make reforms to the wider economy - such as opening up the labor market, allowing more competition between companies and training workers for skilled jobs.
Ultimately, a failure to reform these economies could trigger deflation - or a fall in real prices - across the entire 16-nation euro area, Rehn warned.
"We may face a situation where we have deflationary developments in the whole euro area," he said.
Greece is under pressure to make its economy more competitive in the long term. Countries often do that by devaluing their currency, a choice Greece does not have because it is part of Europe's currency union.
This means it must make other efforts, such as curbing wage levels - or risk its problems affecting other euro nations. Rehn praised Greek moves to slice 10 percent of the public sector wage bill as "an important signal which should be followed in the private sector."
He also said Greece, which now has access to a last-ditch financial backstop from other eurozone governments, would not default on its debts.
"Default is not an issue. There will be no default," Rehn told a conference organized by the European Policy Centre think-tank.
He also said he had "no reason to doubt" that Germany would join a bailout for Greece even though the German parliament will likely debate and vote on whether to grant a loan. Germany's share, at 8.4 billion euros (US$11.5 billion), is the largest part of a 30 billion euro eurozone financial backstop.
"Germany is committed like the other 15 euro area member states to participate ... if requested and if needed," he said.
Financial markets are charging higher interest rates for Greek bonds because they believe the country may be unable to repay growing debt while its economy grows slowly.
Olli Rehn said it wasn't enough for Greece and other "deficit countries" to reduce their budget shortfalls in coming years and not make reforms to the wider economy - such as opening up the labor market, allowing more competition between companies and training workers for skilled jobs.
Ultimately, a failure to reform these economies could trigger deflation - or a fall in real prices - across the entire 16-nation euro area, Rehn warned.
"We may face a situation where we have deflationary developments in the whole euro area," he said.
Greece is under pressure to make its economy more competitive in the long term. Countries often do that by devaluing their currency, a choice Greece does not have because it is part of Europe's currency union.
This means it must make other efforts, such as curbing wage levels - or risk its problems affecting other euro nations. Rehn praised Greek moves to slice 10 percent of the public sector wage bill as "an important signal which should be followed in the private sector."
He also said Greece, which now has access to a last-ditch financial backstop from other eurozone governments, would not default on its debts.
"Default is not an issue. There will be no default," Rehn told a conference organized by the European Policy Centre think-tank.
He also said he had "no reason to doubt" that Germany would join a bailout for Greece even though the German parliament will likely debate and vote on whether to grant a loan. Germany's share, at 8.4 billion euros (US$11.5 billion), is the largest part of a 30 billion euro eurozone financial backstop.
"Germany is committed like the other 15 euro area member states to participate ... if requested and if needed," he said.
Financial markets are charging higher interest rates for Greek bonds because they believe the country may be unable to repay growing debt while its economy grows slowly.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
