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EU: a microcosm of global imbalances

The member states of the European Union advocate sound budget policy. That was the conclusion observers drew from the two-day informal meeting of Economic and Finance Ministers (ECOFIN) in Gödöllõ, west of Budapest this past week-end.

Acting chair György Matolcsy, the Hungarian economic minister, called the debate, “intellectually stimulating and electrifying.” He summed up its main lesson by saying that the EU has not fully left the crisis behind, yet, and despite all the hard work that has gone into tackling it, “there are still significant risks on the horizon. Therefore, let us go ahead with structural reforms,” as this is the only way to ensure balanced and sustainable economic growth, and job creation.

At the working session, where Ministers and Member State central bank governors exchanged views on the recent economic developments and the next tasks ahead. Ángel Gurría, Secretary-General of the Organisation for Economic Cooperation and Development (OECD) gave a keynote presentation. He was of the view that “the European Union is a microcosm of global imbalances”. The other invited speaker, John Lipsky, First Deputy Managing Director of the International Monetary Fund, insisted that despite promising developments, macro-economic imbalances still exist both on a global, and on an EU level.

Cautious optimism

At the closing press conference of the two-day informal ECOFIN meeting, Olli Rehn, European Commissioner for Economic and Monetary Affairs, and Governor of the European Central Bank Jean-Claude Trichet, gave an account of the improvement of the macro-economic situation. They gave cautious optimism and voiced their opinion that the events in the Middle East and North Africa could not derail the recovery.

Mr Trichet classified the faster-than-expected growth of international trade and the improvement of business confidence as an upside risks. These two counter-balance downside risks, such as the danger of inflation, uncertainties of the financial market and geopolitical insecurity. Mr Trichet considered it encouraging that the crisis had no secondary effects.

Debt burden eating the future


At the same time, in response to a press conference question about the demonstration in Budapest against austerity measures by trade unions from 22 Member States, both Mr Rehn and Mr Trichet stressed the importance of sound budget and macro-economic policies. “The debt burden is eating the future,” justified Olli Rehn, the need for budget adjustments. Jean-Claude Trichet also reminded participants that experience suggests there is a connection between the soundness of Member State policies and the level of employment.

On the first day of the informal ECOFIN meeting, the consolidation of the financial sector and the banking system was discussed at length. It indicates the strictness of bank stress tests that the newly-established European Banking Authority expects the 90 affected European banks to meet the so-called Core Tier 1 capital adequacy ratio for stress tests, set at 5 percent.

EU priorities

Incidentally, the question of capital adequacy re-regulation also arose at the working session; as the Commission is expected to submit its proposal for the amendment of Directives 2006/48/EC and 2006/49/EC in June. Yet, Member States have not reached an agreement on the capital adequacy ratio, nor on the question whether the ratio should set the minimum or maximum requirement.

The participants confirmed the statement to be made by György Matolcsy, on behalf of the Presidency of the European Council at the IMF’s general assembly on 16 April. They also approved the Terms of Reference that serve to harmonise the attitudes of EU representatives at the upcoming meeting of Group of Twenty (G-20) Finance Ministers and Central Bank Governors in Washington on 14-15 April. The priority topics for the EU are: the identification of large macroeconomic imbalances, the reform of the international monetary system, the financial regulatory reform, and the strong growth of commodity prices.



Sándor Laczkó

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