By Steven K. Beckner

WASHINGTON (MNI) – British Chancellor of the Exchequer George
Osborne said Saturday that “ongoing instability” in the euro zone shows
that the single currency area’s financial system is “fragile” and in
great need of reform.

Osborne, speaking to finance ministers and central bank governors
representing 188 member nations of the International Monetary Fund, also
stressed the need for fiscal reform and consolidation, including in the
United Kingdom.

The top economic policymaker of the UK, which has refused to adopt
the euro even though it is a member of the European Union, was
bluntspoken about the euro-zone’s problems in remarks prepared for the
IMF’s policymaking International Monetary and Financial Committee.

“Ongoing instability in the euro area serves to underline the
fragility of the financial system and reinforce the need to complete the
repair and reform process,” he said.

“In the euro area, the banking system still needs strengthening,
including through the timely resolution of nonviable institutions,”
Osborne continued. “More generally, we need to ensure the full,
consistent and nondiscriminatory implementation of the Basel capital and
liquidity standards, and to address the risks posed by global
systemically important financial institutions (GSIFIs).”

Osborne acknowledged that “this is particularly challenging for a
global financial centre like the UK.”

Speaking of advanced economies more generally, he said “the
priority is still the development and implementation of credible and
comprehensive fiscal consolidation plans.”

But Osborne said “the pace and scale of consolidation should vary
depending on particular country circumstances.”

“The UK faces significant fiscal vulnerabilities and has a globally
systemic financial sector,” he said. “For those reasons, it has been
necessary to implement a strong consolidation plan that has won the
backing of the IMF and the international community.”

“This has been important not just for domestic stability, but also
for the stability of the global financial system,” he added.

Turning in the direction of Britain’s former colony, Osborne opined
that ‘in contrast, the U.S. has the security of the global reserve
currency, which affords it more fiscal space.”

Returning to the euro area, Osborne said “a differentiated approach
to the pace and scale of fiscal consolidation will play an important
role in the rebalancing effort within the region.”

“However, other complementary reforms will be required,” he went
on. “The euro area’s ‘fiscal compact’ represents a significant step
towards greater fiscal integration and coordination of budgetary
policies.”

“However, as the IMF suggests, the euro area should also develop
some form of fiscal risk sharing,” he added.

Echoing other finance ministers, Osborne said the global economic
outlook “has improved this year, in large part thanks to the significant
action taken by the ECB, but more recent volatility demonstrates that
the recovery remains fragile.”

“While significant progress has been made to restore faith in
policymakers, further decisive action is necessary to restore stability
and strengthen growth,” he said.

** MNI Washington Bureau: 202-371-2121 **

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