–Adds Comments on the EMU economy, ECB bond purchases, fiscal policy
LONDON (MNI) – Officials in Europe must take the actions necessary
to address any weaknesses in the European banking system that might be
revealed by the publication of stress test results later today, European
Central Bank Executive Board member Gertrude Tumpel-Gugerell said here
Friday.
In a text of her speech provided by the ECB, Tumpel-Gugerell
declined to comment on the stress test results other than to say that
“appropriate action will have to be taken where needed.” The results are
expected to be published today at 16h00 GMT (12h00 EDT) by the Committee
of European Banking Supervisors.
“Stress tests contribute to the effectiveness of financial
intermediation by providing more information about the condition of
financial institutions and of the financial system as a whole,”
Tumpel-Gugerell noted. “By combining transparency regarding the results
of stress tests with appropriate measures to deal with potential
weaknesses, European authorities will send a clear message to market
participants about the resilience of the financial system.”
She noted that while the economic outlook in the Eurozone is “still
surrounded by a high degree of uncertainty,” the recovery is nonetheless
underway, and “a path out of the worst financial crisis of our
generation seems to be in sight.” However, “the return to normality
could be gradual,” she cautioned. “It requires support.”
Still, “after a period of sharp decline, the outlook for growth is
improving,” she said, noting that business and consumer confidence
indicators have trended upward over the last few quarters and that the
Eurosystem staff macroeconomic projections project a rebound in GDP
growth in 2010 and 2011.
Moreover, “the banking sector appears to be well on the road to
recovery” with stronger capital buffers, improved profits and a
declining loan-loss profile.
The recent expiry of the ECB’s E442 billion 1-year LTRO, only about
half of which was replaced in subsequent refinancing operations, “went
very smoothly overall, without any renewed tensions in the interbank
money market,” Tumpel-Gugerell noted.
Tumpel-Gugerell said the extraordinary measures implemented by the
ECB since the onset of the crisis have helped maintain stability and
avoid the worst. The central bank’s sovereign bond purchasing program,
which started in May, “has helped to ease considerably the tensions in
euro area government debt markets,” she said, noting that sovereign bond
spreads and credit default swap (CDS) premia had fallen significantly
from their peak in the first week of May.
“Together with the commitments made by many euro area governments
with respect to their public finances, the ECB’s purchases should
contribute to further improvements in these markets,” she said.
Tumpel-Gugerell emphasized that there are still challenges facing
the Eurozone, including large public sector deficits and debt, divergent
economic performances among member states.
“Fiscal discipline is essential,” she said, noting that fiscal
stimulus measures have contributed the equivalent of 2% of GDP in the
Eurozone.
“But with the economic outlook improving, it is now time to phase
out these special measures and to start fiscal consolidation, in line
with the recommendations made in the country-specific excessive deficit
procedures,” she urged. “For a number of countries, this process should
start in 2010 and for the remainder it should start in 2011 at the
latest.”
Tumpel-Gugerell also urged improved budget surveillance among EMU
members and said there should also be “close oversight” of the relative
competitiveness within the Eurozone.
She noted that the Eurozone has come under intense market scrutiny
in recent months, as the sovereign debt crisis spilled from Greece over
into other member states. “But let me be frank: the euro itself is not
the issue,” she said. “Quite the contrary, the euro is an achievement
that has met with great success.”
–Paris Newsroom, +331-42-71-55-40; bwolfson@marketnews.com
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