BRUSSELS (MNI) – Amid serious financial turmoil, facing severe
challenges to its cohesion and economic future, Europe must pull
together politically or risk implosion, EU Economic and Monetary Affairs
Commissioner Olli Rehn warned Friday.

“Either we can give in to the populist sirens and to the reform
fatigue, and risk losing all we have achieved in fighting the crisis,
and a lot of the achievements of European integration,” Rehn said in
remarks prepared for a conference here.

“Or we can choose to work together and take responsible decisions
to put down the financial turmoil, reinforce our economic governance,
and turn the recovery into a lasting revival.”

“It has been clear for a long time that the current stage of the
crisis is a severely intertwined combination of a sovereign debt crisis
and banking sector fragilities,” Rehn observed. “It is equally clear
that we cannot solve one without solving the other. We need to resolve
both, in parallel.”

Overall, the economic recovery “is maintaining its momentum and
becoming increasingly self-sustaining, despite the financial turmoil and
external turbulence,” he said. “However, developments remain uneven and
tensions in the sovereign debt market continue.”

A major step forward should be achieved this month when European
leaders adopt the Commission’s legislative package from last autumn,
Rehn argued.

The main objectives of this package are to strengthen the Stability
and Growth Pact, introduce broad surveillance of macroeconomic
imbalances and divergences in competitiveness, and create a more
effective enforcement mechanism, “with earlier and more automatic
sanctions,” he said.

Looking further ahead, Europe must shore up its competitiveness in
order to foster employment and growth. “This depends to a very large
extent on our ability to drive innovation,” Rehn said. “In a world of
decreasing resources, innovation is our best guarantee for Europe’s
future standard of living.”

Faced with fiscal constraints, the only way to step up efforts in
R&D, education and innovation is “to ensure that public funds are used
in the most efficient way,” he said.

“This is why we have recommended to the member states this week
that fiscal consolidation must not happen at the cost of
growth-enhancing expenditure,” he reminded.

Rehn rejected the “simplistic dichotomy” between “a full political
federation and transfer union” or dismemberment of the Eurozone.

Instead, he argued that “once we have finished fire-fighting and
completed the legislative package,” the Eurozone must further strengthen
its institutions, its external representation and its internal
functioning.

–Paris newsroom +331 4271 5540; e-mail: stephen@marketnews.com

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