HAMBURG, Germany (MNI) – To restore the confidence of financial
markets in the Eurozone, there is no alternative to deficit cuts and
structural reforms for governments and recapitalization for banks,
Bundesbank Vice President Sabine Lautenschlaeger said Tuesday.
While 2012 will be another “year of crisis, there are signs that we
are coming closer to a solution,” Lautenschlaeger said in her New Year’s
greetings at the German central bank’s regional branch here.
However, “we cannot expect rapid success,” she cautioned, since
patience and persistence are needed to overcome the crisis.
The resolution of the sovereign debt crisis must go to the root of
the problem and not just deal with symptoms, Lautenschlaeger stressed.
“If, for example, the debt of some [Eurozone] member states is the
problem, more debt cannot be the solution.”
Lautenschlaeger rejected criticism that fiscal consolidation can
drive an economy into the ground, arguing that there was “no
alternative” to more savings.
In addition, bailout countries must undertake structural reforms to
give greater flexibility to labor, goods and services markets in order
to restore competitiveness.
While Ireland has shown that this is possible and Spain and Italy
are moving in the right direction, developments in Greece are less
satisfactory, she said. “If the savings and reform targets are not met,
help [from abroad] makes no sense,” she said. “It can smooth the path
but not substitute for reforms.”
At the Eurozone level, leaders have the choice between a “veritable
fiscal union” or tougher rules for national budget policies,
Lautenschlaeger said. Without control over national budgets, there can
be no common issuance of debt, she insisted. “That would be the wrong
route.”
As for banks, without strengthening their capital base, market
confidence cannot be restored, Lautenschlaeger underscored.
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