BRUSSELS (MNI) – Europe’s finance ministers and central bankers,
ending a two-day meeting here Friday, emphasized the uncertainty
hovering over the economy and noted that risks related to the sovereign
debt market could spread to the banking sector.

“Despite the better than expected growth performance in the second
quarter of 2010, the recovery remains fragile and uncertain,” the
European Union’s 27 finance ministers and central bankers said in a
statement.

“Ministers and governors pointed to the risks related to the
sovereign debt market that could have a contagious effect on the banking
sector,” the statement continued.

Investor concerns about Ireland have dominated the two-day informal
meeting of policymakers, which they attend twice a year.

The cost of bailing out Ireland’s banking system will push the
country’s budget deficit to 32% of GDP this year. The Irish government
has committed to cutting the deficit below the EU’s 3% limit by 2014.
Stripping out the banks, the deficit is still well above 11% this year,
the largest in the Eurozone.

Ireland’s government is planning to set out a four-year budget plan
in November in which it will outline how it plans to bring its budget
deficit below 3% by 2014. European Central Bank President Jean-Claude
Trichet has said that Ireland’s ability to do so will be “key” for the
ECB.

During the press conference after the meeting, Trichet reiterated
his call for all governments to take action.

“As you know we are calling on all European governments, as the
Commission is also doing…[to embark] on the appropriate consolidation
measures. We are particularly insisting on that ourselves in the euro
area, for those countries like Ireland, like Portugal,” the ECB
President said.

The statement from the finance ministers and central bankers said
that fiscal consolidation should be at the “core” of their approach.

And it said that on economic governance and structural reforms “the
right mix between fiscal stability, reinforced macroeconomic
surveillance and support to growth-enhancing reforms” was needed.

At their meeting, the ministers discussed financial regulation, the
role of credit ratings agencies and a financial transaction tax.

Trichet said he thought a transaction tax would only be possible if
global agreement was achieved on it.

Little progress was made on the issue of credit ratings agencies,
on which the Commission will make a proposal in the first half of 2011,
or on transaction taxes, about which the statement said, “diverging
opinions emerged on the practicality of such an approach.”

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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