–Canada’s Flaherty: Situation In Europe Remains Dangerous

WASHINGTON (MNI) – The Eurozone will probably have to contend with
nothing more severe than a very slight growth downturn this year,
European Central Bank Executive Board member Joerg Asmussen said
Thursday.

Asmussen, speaking at the Bertelsmann Foundation – Financial Times
annual conference conference in Washington D.C., said that at the ECB
“we think we have done our task in the last months by quite a number of
standard and nonstandard measures we have taken.”

Meanwhile Canadian Finance Minister Jim Flaherty, speaking on the
same panel, warned the situation in Europe remains dangerous, with the
firewall set up not yet adequately funded and the banking system
“woefully undercapitalized.”

But Asmussen argued that “we managed to stabilize the situation” so
that there is now likely to be “only a very mild recession this year in
the Eurozone … but there is clearly no room for complacency. So what
we must aim for in Europe, in the Eurozone,” is “first we need fiscal
consolidation, and second we need growth and jobs.”

Asmussen said that by its actions, the ECB has “bought time, but
the mandate and the instruments of a central bank are limited,” so that
now “the other players must do their part.”

Turning to Spain, Asmussen affirmed that “one can regain confidence
of markets and investors by taking significant actions, and I am sure
that they will do this. So the ball is clearly with the Spanish
government.”

He rejected assertions by Canada’s Flaherty that the European
firewall was insufficient, claiming that Europeans “have done their work
on the firewall.”

“I think the Europeans have done their part and now it’s up to the
global partners,” he continued. “I think we can reach a significant IMF
resources increase this week … I’m confident that we can manage to do
this and this is in the interest of all of us.”

However, he stressed, “firewalls are no substitute for doing
reforms at the level of individual states.”

Asmussen noted the increase of private consumption in Germany,
calling this the result of labor market reforms in Europe’s largest
economy. “After a certain time, painful reforms pay off,” he said.

“If I would see any surprises this year for the German economy,
it’s on the upside,” he said.

Flaherty struck a more negative tone, saying that there remains “a
very dangerous situation in Europe, that the recovery is fragile, that
the banking system is woefully undercapitalized.”

The firewall, he insisted, is “so far not adequately funded.”

A crisis like the current one needs a “dramatic response,” Flaherty
said.

“We have not seen that kind of response yet in Europe,” he said.
“Although some progress has been made, things have become moderately
better.”

–Frankfurt bureau tel: +49-69-720-142. Email: dbarwick@marketnews.com

[TOPICS: M$X$$$,MT$$$$,M$$EC$,MGX$$$,M$$CR$,M$G$$$,M$C$$$]