HELSINKI (MNI) – The public sector budget deficits of European
countries cannot stay at their current elevated levels over the long
term, and the sooner governments begin tackling them the better,
European Central Bank Governor Erkki Liikanen said Tuesday.

Liikanen, who heads the Bank of Finland, declined to comment on
recent suggestions that the ECB might reconsider its collateral
eligibility rules to avoid additional problems in Greece. He said the
measures decided by the Greek government were “convincing,” but declined
any further comment on Greece’s debt woes, or on market speculation.

“I support [European Economic and Monetary Affairs Commissioner]
Olli Rehn in his challenging work” focusing on EU member budget
deficits, Liikanen said. “It’s clear that budget deficits can’t stay at
current levels permanently. It’s of course harder the later you start.”

He said the ECB, along with the International Monetary Fund, was
prepared to help the European Commission in its work on this front.

Liikanen’s comments came in a press conference where he presented
the Bank of Finland’s outlook for the Finnish economy.

The Finnish central bank noted that the government’s finances “are
in a difficult position, and, in terms of economic policy, this is a
critical period.”

To return the public budget to a sustainable path will be “very
difficult” without increasing the number of years people work before
retiring. It will also require improvement in productivity of public
services.

Without those changes, reducing the debt load “would require
substantial tax increases and spending cuts,” the bank warned. Any
delays in taking the right decisions could undermine growth prospects,
it added.

Liikanen warned that, “Finland’s economy will fade if the
foundations of growth are not strengthened, the price competitiveness of
Finnish output sustained, and the sustainability of the public finances
secured.”

He also cautioned against expecting any quick improvement in
Finland’s unemployment rate from the current level of around 9%. On the
price front, the situation is under control. “Inflation is not forecast
to be a problem,” the bank said.

“However, this will not correct the effects of previous excesses in
price and cost trends, and the loss of competitiveness will remain a
burden on the economy,” Liikanen said.

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