Bankiers vinden speculaties eurozone terecht (en)
EUOBSERVER / BRUSSELS - Senior European politicians and bankers exchanged sharp words on Tuesday (25 May), with European Commission President Jose Manuel Barroso i calling on financial actors to stop obsessing over the region's difficulties.
Speaking at a conference in Brussels organised by the commission's economic department, Mr Barroso was highly critical of investors' reactions to the eurozone's ongoing debt crisis.
"I now see in some market commentary what I would call an obsession with events in Europe, more precisely the euro area, to the exclusion of all else," said the Portuguese politician. "A greater sense of perspective would seem warranted."
The tough line on investor behaviour was echoed by Spain's finance minister, Elena Salgado, whose country currently holds the EU's rotating six-month presidency. "Markets are not efficiently distinguishing the fundamentals in different states," she said.
Faced with a massive sell-off of Spanish stocks and those from other peripheral euro area states earlier this month, EU leaders were forced to rapidly cobble together an unprecedented €750 billion support mechanism, together with the IMF i, as contagion appeared to be spreading from Greece to the rest of the 16-member club.
The drastic step was the latest in a string of European responses stemming from the global financial crisis that compelled governments across the region to pour billions into bank bail-outs and stimulus programmes last year.
That extra spending, combined with falling tax receipts, placed a huge strain on national coffers however, with the vast majority of the EU's 27 member states currently in breach on the union's budgetary rules, known as the Stability and Growth Pact. The rules set deficit limits at three percent of GDP and debt limits at 60 percent of GDP.
The deteriorating public finances have led to growing investor caution when buying government debt, a position defended by several representatives at Tuesday's meeting.
Marco Annunziata, chief economist with Italy's Unicredit bank, said irrational investor behaviour was more in evidence before the financial crisis, when the rate of interest charged to lend money to different eurozone states reduced "to almost nothing, without taking the economic fundamentals in each country into account."
But following the onset of the Greek government's debt crisis, investors were no longer looking at the eurozone as one risk level, said Mr Annunziata.
"It has created an immediate reassessment of risk," said the Italian economist, stressing this was not only among short-term traders but also large institutional investors such as pension funds.
His comments were echoed by Vis Shankar, a senior executive with Standard Chartered Bank, who said Asia's more rapid recovery represented its stronger economic position.
Europe's reaction
Europe's reaction to the crisis has been a commission-driven timetable of government deficit cutting measures and calls for tougher EU-wide budgetary rules to prevent future crises materialising.
The need for greater economic co-ordination in general has also been held up as an essential complement to the eurozone's monetary union, a point raised by commentators back in the 1990's prior to the single currency's birth.
In an ideas paper published earlier this month, the commission suggested the idea of withholding EU funds for states that repeatedly break the region's budgetary rules, while the German government has gone further, raising the prospect of a suspension of council voting rights for ministers from over-spending states traveling to Brussels.
European leaders have also tasked European Council President Herman Van Rompuy i with chairing a special taskforce to look into the issue. The group will come forward with an interim report before next month's European Summit, before making its final recommendations in October.
Investors warn that failure to implement meaningful reforms, including a toughening of the Stability and Growth Pact by stepping up sanctions, will merely result in ongoing market doubts.