Bloomberg News

Euro Leaders Need to Step Up Austerity, Finland’s PM Says

March 24, 2012

European policy makers can’t rely on the central bank to manage the region’s crisis and must now follow with measures to cut debt and restore economic confidence, Finland’s Prime Minister Jyrki Katainen said.

“Crisis management can’t be outsourced to the central bank,” Katainen said in an interview in Saariselkae, Finland. “Member states have a couple of years to take austerity measures to restore and strengthen credibility for when the operations end.”

The European Central Bank’s 1 trillion euros ($1.3 trillion) of three-year loans to lenders since December were “extremely necessary and successful,” helping avoid an acute crisis and buying time for fiscal changes, he said.

The Frankfurt-based ECB’s actions have helped ease pressure on bond yields of peripheral countries as the debt crisis has entered its third year following bailouts of Greece, Ireland and Portugal. The central bank kept its benchmark interest rate at a record-low of 1 percent on March 8.

The ECB “has done its part, the governments must do theirs,” Erkki Liikanen, who heads the Bank of Finland and sits on the ECB’s governing council, said in an interview on March 15. The 17-nation euro economy will contract 0.1 percent this year and grow 1.1 percent in 2013, the central bank forecast on March 8.

Market Calm

ECB council member Joerg Asmussen today said the region’s governments must make use of the calm in the markets that was created by the central bank’s three-year loans.

“All countries of the euro zone have to do their homework,” he told reporters in Saariselkae. They have to “do structural reforms, create jobs. This is true for all countries.”

Katainen is hosting a seminar in Saariselkae, 1,100 kilometers (684 miles) north of Helsinki to brainstorm on Europe’s role in the global economy and how to get the European Union’s economy back on track after the debt crisis.

“Banks are in considerably better shape than they were,” Katainen said. “The possibility of an acute banking crisis is much smaller than it was a year ago or two years ago. Europe probably still has excess capacity in the banking industry, but systemically important banks are in much better condition.”

Policy makers attending the seminar north of the Arctic Circle don’t plan a joint statement, the Finnish government said.

“The crisis usually brings your perspective shorter than should be necessary,” Katainen told reporters yesterday. “Finally we have some time to look forward and talk about the future of Europe and the economic development of the world.”

Other policy makers at the seminar are Olli Rehn, the union’s economic affairs chief, Pascal Lamy, who heads the World Trade Organization and Valdis Dombrovskis, the prime minister of Latvia.

“It’s not good that some in Europe contrast growth and fiscal discipline,” Alexander Stubb, Finnish minister for European affairs, told reporters yesterday. “They go hand in hand.”

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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