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Home arrow newsitems arrow ECB new President Draghi to EU Parliament: €uroArea can face the Global Crisis with a 3 steps Plan

ECB new President Draghi to EU Parliament: €uroArea can face the Global Crisis with a 3 steps Plan

Written by ACM
Monday, 16 January 2012
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Clearly and pedagogically replying to MEPs' questions in EU Parliament's Economic and Monetary Committee, the new ECB President, Mario Draghi, carefully but optimistically,  focused mainly into stressing that, despite the "Serious" risks at the present Global Crisis, €uroArea can succeed to face the challenge "if" it acts with "a well-coordinated, coherent and properly timed strategy", as it has already started to do, at least during the recent Months. While controversial UK-USA Rating Agencies should not be taken so seriously and would better face some Competition as French a.o. MEPs ask. And Greece's controversial PASOK Economic Plan on how to meet the overal Financial Targets agreed with the EU on October 2011 had better be reviewed, as he observed, after reiterating the general ESRB's call launched since late December 2011, as "EuroFora" had immediately reported (see relevant previous NewsReport).

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After concluding, a smiling Draghi tried in vain to pose a while at least for an "EuroFora" Photo, but was immediately '"bombarded" by several more MEPs' questions up to EU Parliament's long corridors... 


In particular :


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UKUSA Rating Agencies lost Reputation
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Replying to a critical question by EPP Party representative, mainstream French MEP Gauzes, on the 3 UK-USA Rating Agencies, President Draghi observed from the outset that "all the Rating Agencies had a terrible Loss of Reputation, over the last (Global) Crisis,
Therefore, we should learn either to live without them, or to use them only at a lesser extend, among many other information sources. So, much less Mechanical reliance on them", he advised.


And the fact that we don't have Competition in the Rating Industry, is really an issue,  Draghi criticaly observed.


=> - "So, whatever we do to increase this Competition, is well done", ECB's new President stressed, speaking in Strasbourg the same Day that the Leader of French Governing Party UMP's MEPs, Jean-Pierre Audy, just reiterated his call for the EU to support the Creation of a European, Independent and professional Rating Agency, while also advancing the idea for the establishment of a New, World-wide Rating mecanism supported by the IMF and/or the UNO.

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Draghi : 3 steps Plan for €uroArea, (focused on Structural Reforms)

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draghi__sharon_bowles_400

But, the most interesting of all was Draghi's overall presentation on what shoud be €urozone's overall Action Plan, that he highlighted in reaction to the claim launched by Socialist MEP Bullmann éthat, "WIthout Investments, people have said that we'll slip in a kind of visious circle", as he had said...

soc_mep_quest_400



 - "We have 3 sets of Actors ; If they all do and act consistently and effectively, then, we [EU) will reach Stabilisation", ECB's new President highlighted in reply :
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1st, National Governments. They have to put into place serious Fiscal Consolidation Plans.
What one sees accross Europe is Encouraging. Basically, Governments show a will and a Determination in pursuing Fiscal Determination in different (EU) Countries.


However, we shouldn't deny the Truth  : Fiscal Consolidation, if it's strong, as needed, this will have a "Short Term output Contractionary effects", as he noted.
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=> So, what can we do to Mitigate these efffects ?  An answer is that Economic Reform should be made also with Structural Reforms that increase Competitiveness, enhance Growth, and create Jobs.

Growth and Job creation in a area where Unemployment aproaches 10%; becomes more and more an objective to be pursued, together with consolidation of Budgets.


In fact, Growth and Stability are Complementary to eachother. Because there can't be any Sustainable Financial Stability without Growth", (as f.ex. the case of Greece also proved recently).


That's the 2nd part.
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+ The 3rd Actor, is a sort of "FireWall" , in the sovereign bonds' Market, ECB's new President added.


Because, we started this situation when Debts became big, but, during a certain period of Time, Markets are still "fragile" ("not only in Europe, but all over the World"), and, clearly, more than 5 Years ago, you practicaly didn't have but only some tiny spreads, since they were Not reflecting the Differend Risks.


But, then, after the Lehman brothers' crisis (in the USA), the perception of Risks Hightened, Investors started thinking that some had lied to them, Spreads started to grow dramatically, and, from Under-Shooting, (as previously), now they went towards Over-Shooting the differences in Interest Rates.


=> Therefore, there will be a Time when a "FireWall" would be really Useful, Draghi warned.


Because you'll have to avoid a moment when the Cost of Credit would be geared not to the Short-term, as we (ECB) do when we lend to Banks, but to the Alternative Investment, which is a Government Bond. So that the Cost of Credit would reflect the Higher level : i.e. the Government Bond, and not the Lowest Rate that we (ECB) ask the Banks to pay for that, he explained.
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=> As for the 500 Billion € move made recently by the ECB, (See 12/2011 "EuroFora"s NewsReport), it "is functioning", but we have to give it some Time yet. We (ECB) actually view it as being an Effective Measure, and we have several Proofs about it, he added.
Let me resume the Measures we took during the last 2 Months :


- We launched the unprecedented 3 Years Liquidity Facility, at 1% interest rate,


- We have halved (-50%) the Minimum Reserve requiry Ratio, from 2% tp 1%, so that it wil Free more than 100 Bilions € in collateral.


- We have broadened the Collateral Rules so that even Banks which are not Big enough, ca, actually access to the collateral, to the ReFinancing Facilities. (The reason being that the Traditional conceptions of collateral were only accessible to the very Big Banks).


So, we've done this for 2 main Reasons :


* 1st of all, we see that the key Refinancing Markets for Banks are Blocked.


=> So, we think that (with the December 29, 2011 Measure : See "EuroFora"s relevant NewsReport then), "we have avoided a Major Credit Crush", as there was an Emergency, (particularly with 200 Billions € Bonds coming in the first of theses two months). ...


* 2nd aim of that was to reach the target of Small-Medium Banks, who mainly fund SMEs, responsible for 60% to 70% of Jobs.


+ Some claim that the Money wasn't used because it was largely deposed back to the ECB. But, in fact, it's not the same Banks who took, and those who deposed Money back. So, meanwhile, the Money has circulated.


>>> From many points of view, we (ECB) are Satisfied by the efficiency of that Measure", Draghi concluded in reply to an EuroSceptic British Conservative MEP.
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Last but not least, questioned by MEP Lamberts on the situation of "Private Debts" in EU Countries, Draghi replied that there are All sorts of very Differend Situations, in this regard, going from those where the situations seems "out of control", up to EU "Countries which have the Smallest Private Debt in all the Western World", (i.e. a Record- High Private Lending Capacity), such as, notoriously, Italy and France, etc., which reportedly have among the Best and Strongest Private Savings in the World....


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New ECB President on "Greece" : Review the controversial October 2011 ("PASOK") Economic Plan on how to meet the Financial Deal agreed with the EU
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+ Finally, making just some "General" comments on Greece, in reply to a Question by MEP Chountis, (Left), ECB President started by observing that the October 2011 apraisal (of sustainability of the Greek Debt) had to be reviewed, "in view of the Fact that the Greek Program (which had been presented by the former PASOK Prime Minister Giorgos Papandreou, provoking unprecedented Popular Revolts and worse than expected Recession), both because of Lack of Growth, and of some non-implementation in part, is Not Delivering as expected", and this is part of the current Negotiations with the Private sector".


The controversy seems to focus on the controversial and inefficient, concrete Economic Measures and the practical way with which the G. Papandreoy "PASOK" Government had sought to meet the overall Financial Targets agreed with the EU, and not these targets in themselves, (Comp. the "Cannes Formula" suggested by "EuroFora" since the November 2011 Top meetings on the sidelines of the G20 Summit, and apparently endorsed by French President Sarkozy and the main opposition leader Samaras, etc).


Thus, a Realistic outcome would be an outcome which would guild, with a sufficient degree of realism, a Debt with a GDP Ratio of 120%, by 2020. This is a "realistic" outcome in the case of Greece, Draghi stressed in this regard, but without Time to explain in detail.


However, the overall estimation of ECB's President was that, in principle, a realistic outcome in the case of Greece was "possible". (Comp. "EuroFora"s latest NewsReport from Berlin+).

(../..)

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(NDLR : "DraftNews", as already sent earlier to "EuroFora"'s Subscribers/Donors. A more accurate and complete, Final Version, may come asap).


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Recent developments proved that Europe can suceed to overcome challenges by aiming at great objectives, and this is needed also in 2009, said EU chairman, French President Nicolas Sarkozy.

    - "It's in the name of Great Ideas, Projects, Ambition and Ideals, that EU can overcome" challenges, stressed Sarkozy at EU Parliament in Strasbourg, in conclusion of a dense 7 months EU Chairmanship. "It's even easier for Europe to have Great projects, able to overcome national egoism, instead of limiting itself only to small projects" (unable to do alike), he observed.     

- "Europe must remain Ambitious and understand that the World needs her to take Decisions". "The World needs a Strong Europe", which "thinks on its own, has convictions, its own responses, its imagination" : "A Europe which does not limit itself into following" others, (as it did in the Past, when it followed USA, f.ex. on Bosnia). On the contrary, "Europe should undertake its own responsibilities", he said, after a series of succes in stopping the War between Russia and Georgia, and organizing the 1st EuroZone's Summit in Paris, which incited the Washington DC G-20 Summit to extend similar decisions World-wide.  


    - "When you sweep it all under the carpet, prepare yourself for hard tomorrows", he warned. "What hinders decisions is the lack of Courage and Will, the fading away of Ideals", he stressed before EU Parliament's 2008 debate on Human Rights and Sakharov prize on Freedom of thought attributed by MEPs to Chinese cyber-dissident Hu Jia, followed by an EU - Turkey meeting on Friday.

    - "I don't abandon my convictions" and "I will take initiatives" on EU level also in 2009, Sarkozy announced later. "France will not stop having convictions and taking initiatives" on Europe. + "It's an Error to wish to pass over the Heads of those who are elected in their Countries" : "It's an integrism I always fought against"', he warned.
---------------------
French EU Presidency faced 4 unexpected Crisis :

- An institutional crisis, with the Irish "No" to EU Lisbon Treaty, just before it started. A geopolitical crisis, wth the threat of War between Russia and Georgia risking to throw Europe back to Cold-war divisions, on August. A World-wide Financial and Economic crisis, arriving at a bad moment before crucial 2009 EU elections. And even a Strasbourg's mini-crisis, with EU Parliament's roof curiously falling down, from unknown reasons, in a brand new building on August, provoking an unprecedented transfert of the 2 September Plenary Sessions...

But it wasn't enough to stop Sarkozy ! On the contrary, it stimulated him...
---------------------------------------

- "The better way to deal with the recent problems of EU institutions (as the "3 NO" by France, the Netherlands and Ireland) is to take them as a "Test" in order to find solutions closer to Citizens' concerns", said later in Strasbourg Sarkozy's new choice as Ministe for EU affairs, Bruno Le Maire.

- On the Institutional front, Sarkozy gave Time to the Irish to think about it, and stroke on December a deal including a New Referendum after the June 2009 EU Elections, in exchange of a promise to keep the rule of "one EU Commissioner for each EU Member Country", and some opt-outs on Defence and Fiscal EU policies, Abortion, etc. If the Irish get a "Yes" Majority, then the institutional package could be completed in 2010 or 2011 on the occasion of Croatia's probable EU accession.

He was accused in Strasbourg to upgrade EU Council and downgrade EU Commision, but he replied that "strong Political initiatives by EU Council reinforce also the more technical role of EU Commission, under the political-technical leadership of its President", all 3 "working together with EU Parliament".


- But, meanwhile, Sarkozy energetically spearheaded an Historic 1st Summit of EuroZone's 15 Heads of State and Government at EU's core, exceptionally enlarged to a partial participation of British Prime Minister Gordon Brown, on October 12 in Paris' Elysee palace, which started to tackle succesfully the growing world Financial crisis.

    It also paved the way for its endorsement by a subsequent Brussels' 27 EU Member States' gathering, before it all come to Washington's G-20 Summit. And "Europe was united, it asked for the 1st G-20 Summit, and it will also organise the next G-20 Summit on April in London", he observed.   

 But a Conference with EU, Russia, African and other Developing Countries, hosted in Strasbourg shortly after Washington G-20 Summit by the French EU Presidency, took a Resolution asking to enlarge participation to Global Economic Governance. Many found, indeed, illogic and unacceptable that f.ex. states as Turkey were given a seat at G-20 level, while all African Countries, and even the African Union itself, representing the greatest Continent on Earth, were excluded...


    Meanwhile, even USA''s "Paulson No 3" Plan, was, in fact, inspired by Europe's No 1 Plan", Sarkozy observed, largelly applauded by MEPs.

    And "Europe showed Solidarity" by mobilizing some 22 Billion credit for Hungary, 1,7 billion for Ukraine, as we do nowadays for Baltic States, etc., he added.

    The move on Economy was extended on December by an EU stimulus' plan totalling some 200 billion Euros, including 5 Billions released by EU Commission for big Projects, as well as various parallel National plans for Economic revival, (fex. 26 billions in France alone). They might appear limited, compared to USA President-elect Obama's reported plan to boost the American economy with 800 billion $, but at least succeded to overcome Europe's divisions for the first time on Economic governance, opening new horizons.

- The French President stressed even harder the unique role of an active EU Council's chairmanship, when he moved swiftly and efficiently, at the beginning of August, to succesfully stop War between Russia and Georgia, at the last minute, which threatened to bring Europe back to Cold War division.

"We (EU) also wanted to avoid a situation like in Bosnia, in the Past, when EU was absent, so that our American friends took their responsibilitues, and EU only followed", despite the fact that the conflict took place in Europe. Now, it was the EU who took its responsibilities".

A roadmap towards a new PanEuropean Security policy, before which all unilateral moves to place new Missiles (from USA or Russia) would be freezed, was proposed by Sarkozy after a meeting with Russian president Medvedev, at the eve of Washington DC's G-20 Summit.

Ukraine's "European" character was stressed at a Sarkozy - Jushenko Summit, September in Paris, while EU adopted on December an "Eastern policy", in which, "I'm convinced that our (EU's) future is to find with our Neighbours the conditions for Economic Development. Peace and Security, by explaining them that.. they must respect (Human Rights') Values, and adopt behaviors different from the Past", explained Sarkozy in Strasbourg.

Meanwhile, the "Union for the Mediterranean" was created, since July's Summit if 45 Heads of State and Government in Paris, as "an organisation for a permanent Dialogue, that we need", mainly in order to tackle the Israeli-Palestinian conflict, by bringing together, for the 1st time, Israelis and Arabs, where "Europe must be present, in order to avoid a frontal clash".

- "If Europe doesn't take its part for Peace in the Middle-East, nobody else will do that in our place", Sarkozy stressed.
-----------------------
    Meanwhile, other EU Agreements were brokered during the French EU Presidency on Immigration, (fex. common Asylum rules, etc), and Climat- Energy :

    - On Climat-Energy, the 2007 German EU Presidency had fixed a triple 20% aim for 2020 (20% renewable Energies, 20% reduction of CO2 emmission, 20% energy efficience/economies), and the 2008 French EU Presidecny realized that, making the necessary compromises in order to modernize EU's industry, but without throwing some former Central-Eastern European Countries into abrupt Economic break down risking "social explosion".

    - Defence-Security EU policy was mainly postponed for April 2009, since both German chancellor Merkel and French president Sarkozy want to strike a deal with the new American president Obama in Strasbourg's NATO Summit.

    However, with all these 4 unexpected Crisis diverting attention to other urgencies, People wil wonder now, what happened to the famous deal proposed by freshly-elected French President Sarkozy on Turkey's controversial EU bid, back on August 2007, to continue EU - Turkey negotiations, but on the double condition that core chapters, intrinsequally linked with EU Membership, will be excluded, and that a collective Reflexion and Debate on Europe's future would start before the end of 2008.

    It was meant to reply to the crucial question : What kind of Europe do we want in 10 or 20 Years from now : A large Market, or a Political Europe, with a popular identity ? In Sarkozy's thinking, presented in his 2 landmark speeches on Europe in Strasbourg, shortly before and after the 2007 Elections, (on February and July 2007), Turkey's controversial EU bid would be incompatible with the second choice.

    It's true that EU Commision's Chairman, Jose Barroso, (who had notoriously declared, as former Portuguese Prime Minister, that he found "nonsense" the idea that Europe might become equal to the US), had repeatedly tried to avoid that Sarkozy's criticism on Turkey might start winning a larger audience in Europe, preferring a discrete "wismens' committee" work. And that most of the personalities later chosen in order to participate in a Committee on Europe's Future, are too much linked with Socialist parties and/or American policies, to be really critical of USA's notorious wish to impose Turkey to the EU, as Sarkozy had noted himself since March 2007..

     - "It's on EU Council's presidency to take political initiatives. EU Commission has other competences", stressed Sarkozy. The "European Ideal" is to "build Europe with the States, not against them". "Ask Europeans to chose between their countries and Europe won't work. You don't choose between your two parents : We must add them together".

    "France and Germany have an Historic Duty to work together, precisely because of what happened to the Past. We have to work hand by hand. We cannot be separated.It goes beyond me and Mrs Merkel today, Mr Schroeder and Mr. Chirac yesterday. It's not a choice, it's a duty to Europe and to the World".  "We need Germany, as Germany needs Europe". Compromise is inevitable, here as everywhere, and each one made some steps towards eachother's positions.

    But "it's true that Mrs Merkel didn't chose her Socialist partners, while I chose mine", Sarkozy said, in an indirect hint that the Socialist Minister of Finance in Germany might be a cause of minor past disagreements in Economy, which were overcome in recent negotiations.

    "We (France and Germany) have particular duties in Europe", but "in a Europe of 27 Member States, it's not enough for France and Germany to agree between them.

    "I always thought that Great Britain has a special role to play in Europe. ... Now, everybody "saw what it cost payed the UK for having been too exclusively open towards the US (and) Financial services. Europe needs the UK, but also the UK needs Europe" :- "We were able to face the hardest moment of the Financial crisis because the UK clearly chose Europe", stressed Sarkozy, reminding Gordon Brown's exceptional participation to the Historic 1st Heads of State/Government Summit of EuroZone, October 12 in Paris (See EuroFora's Reportage from Elysee Palace then).

     - "Some look at Europe with old glasses aged 30 years ago. While we must look at her in relation to what it will be in 30 years" in the Future, Sarkozy concluded.

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