Europe must share blame for sovereign debt crisis: ECB’s Stark

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Jürgen Stark, a member of the executive board of the European Central Bank, said on Wednesday that Europe cannot run away from the fact a lack of sufficient surveillance contributed to the sovereign debt crises in some member states.

At a conference in Attica, Greece, he said that "the institutional framework [in Europe] so far lacks any effective tools for macroeconomic surveillance which could prevent the emergence of macroeconomic imbalances. The Broad Economic Policy Guidelines have proven not to be an effective tool".

Calling for a number of policy changes in the euro area he said "the main objective has to be a smooth functioning of European Monetary Union, which implies that countries follow a path of sustainable and balanced growth".

The strategy to achieve this "consists of two key elements", said Stark. First, to "unwind the imbalances that had arisen during the first decade" of the European Monetary Union; and second, "to ensure an adequate institutional framework and sufficient structural flexibility of individual member states so that the risk of such imbalances occurring again is minimised."

Stark's reminder of the wider responsibility for the crises in Greece, Ireland and Portugal came after there seemed to be some discord among top European officials regarding extending Greece's debt maturities.

Greece discord
ECB executive board member Lorenzo Bini Smaghi, told the Wall Street Journal on Monday that an extension "would do little to solve the country's unfolding debt crisis," insisting instead that Athens "press ahead with painful austerity measures to shore up its finances".

"The problem is that the extension of maturities would not have a big impact on the sustainability of the debt and it would probably trigger some kind of credit event," Bini Smaghi said, when asked about a voluntary maturity extension for Greek bonds.

"It is very difficult to distinguish between just a lengthening of maturity and a credit event," he said, though he added in the interview, "this kind of thing has to be studied."

Meanwhile, it was widely reported that in Greece, European finance ministers had for the first time mooted the possibility of talks with bondholders over extending Greece's debt-repayment schedule, saying that last year's €110 billion ($156 billion) rescue had not restored the country to financial health.

Europe would consider "reprofiling" Greek bond maturities as part of a package including stepped-up sales of state assets and deeper spending cuts, Luxembourg prime minister Jean-Claude Juncker said on Monday, according to the newswire Bloomberg.

"We'll have to see whether we can't proceed to a soft restructuring of Greek debt," Juncker, who chaired Monday's meeting of euro-area finance ministers, said at the Lisbon Council in Brussels today. "I am strictly opposed to a large restructuring of Greek debt."

Unravel policy
Stark on Wednesday also said that now was the time to start thinking about normalising monetary policies.

"The majority of European Monetary Union member states is about to overcome the economic consequences of the global financial crisis," he said. "The economy no longer needs the degree of economic or monetary stimulus as adopted during the height of the crisis in late 2008 and early 2009."

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