Nov. 15 (Bloomberg) -- The 17 countries in the euro area need to move in the direction of “real economic union” to bolster confidence in financial markets and the broader economy, European Union President Herman Van Rompuy said.
“This will require a combination of two things: a significant strengthening of our rules and mechanisms for fiscal responsibility, and a large step in terms of integration in economic policies, particularly in those areas that are important for the smooth functioning of the monetary union,” Van Rompuy said in a speech at a Lisbon Council conference in Brussels today.
“Clearly this would imply in some of these areas a pooling of sovereignty in exchange for a stronger, more stable monetary union,” he said.
Van Rompuy called for a “de-dramatization” of tensions between the euro area and the EU’s other 10 member states. He said EU changes need to go beyond incremental budget cuts because of the scope of the crisis and a weak economic outlook.
Economic growth in the EU is projected to stagnate well into next year, with growth in gross domestic product forecast at about 0.5 percent in 2012, Van Rompuy said. In 2013, growth of 1.5 percent is expected and “no real improvements are projected” in the EU’s 9.5 percent unemployment rate.
Slow economic growth is, on average, not a consequence of fiscal consolidation, Van Rompuy said. Instead, he said, it’s tied to a lack of confidence among consumers and investors.
In this situation, “our main task is to find the right balance between austerity measures and stimulus,” Van Rompuy said. “Overall deficit spending can therefore not be the answer to the current situation.”
--Editors: Andrew Atkinson, Fergal O’Brien
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