MARSEILLE, France (MNI) – The Eurozone’s economic recovery is
continuing, albeit at a slower pace, and authorities are carefully
examining all incoming data, European Commissioner for Economic and
Financial Affairs Olli Rehn said on the sidelines of the G7 meeting on
Friday.

Rehn told journalists that the finance ministers and central
bankers of the G7 countries must seek coordinated action to rebalance
the global economy and allow the recovery to continue.

For that, it is essential to stabilize the financial system, Rehn
said. While the European financial system is “facing challenges” with
respect to funding, it will overcome these, he predicted.

“It is clear that while the economic recovery is continuing, it is
moving forward with a moderating pace, and we have to be alert in order
to assess the future trend in the European economy,” he said.

“At this stage, it is essential that we underline the importance of
consistent consolidation of public finances, because that is the real
challenge, not only in the program countries, but in several other
countries who have been facing market turbulence in the recent period.”

“All in all, there are challenges in terms of bank funding, but as
[ECB] President Trichet said yesterday in Frankfurt, the ECB continues
to provide liquidity,” he said. “And with the combination of these
measures, I’m sure that the European banking sector will overcome the
challenges and will become a little more resilient.”

“We are not in the same kind of situation now” as after the failure
of Lehman Brothers, he said. “European banks are much better capitalized
than some time ago. Of course there are challenges, but the bank stress
tests earlier this year both encouraged banks to recapitalize themselves
and also showed some weaknesses.”

Asked for his message to the G7, Rehn said it is crucial that the
meeting discuss “how to take coordinated action in order to rebalance
global growth” and ensure the continuation of the economic recovery.

“In that context, the stabilization of the financial system is a
necessary condition on which we are working both in the short term and
in the medium to long term,” he added.

Financial sector repair is what is needed in the short term, while
beyond that, financial sector regulatory reform including regulation and
supervision lead the agenda, he indicated.

Noting that “the key players in the global economy are in different
economic situations,” Rehn refused to agree that Europe needs to apply
more fiscal stimulus like the U.S., and stressed the need for solid
public finances on this side of the Atlantic.

“We all face the challenge of ensuring that the economic recovery
can be contained, but at the same time our starting positions are
somewhat different,” he said. “We support the United States in its work
to ensure that the recovery in the U.S. economy can continue, while at
the same time in Europe we have our own challenges.”

Europe continues to confront “a very serious sovereign debt
crisis,” he underscored. To overcome the crisis, “especially the
countries who are considered vulnerable need to consistently continue
fiscal consolidation,” he said, as this is how confidence can be
restored. Automatic stabilizers can be permitted to do their job where
they have the fiscal room to do so, he said.

On the subject of the Swiss National Bank’s recent decision to
declare a minimum foreign exchange rate vis-a-vis the euro, Rehn
deferred to the statement of Trichet at the ECB’s monthly press
conference Thursday.

Calling it “essential” to come up with legislation to reinforce
economic governance, Rehn predicted that there would soon be an
agreement “and the Parliament could then vote in the second session of
September.”

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

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