23 May 2012

Commissioner Almunia: Overcoming the crisis - the role of finance

Commissioner Almunia stated that investors no longer perceive sovereign bonds as virtually free of risk, and this means that no measure addressing the banking sector alone will bring a lasting solution to the current crisis.

"We can draw two main lessons from the experience we have gained so far during this process:

• First, that an early recognition of the problems in banks' balance sheets, coupled with a sizeable state support and decisive restructuring, have produced tangible results.
• Second, that in some countries the financial sector was simply too large compared to their output or to the state of their public coffers.

There are other factors as well, such as the lack of fiscal discipline in some countries – such as Greece – and internal imbalances in the euro area, especially, persistent current account deficits with other countries of the EMU. In addition, a number of structural problems have been let to simmer for too long, such as a continuing loss of competitiveness in some of the peripheral EMU countries and an inadequate system of governance for our common currency.

A lot has been done in recent times to address these issues, and we are witnessing a major overhaul of the governance framework in the euro area. The Fiscal Compact is one notable example. The compact must be urgently ratified so that its instruments can be put to work while the European semester is in full operation. The same applies to the European Stability Mechanism.

Remaining vulnerabilities in the banking system also need to be addressed. The recent measures taken by the Spanish government to increase provisions against real-estate assets and for more transparency in the books of the Spanish banks are steps in the right direction.

Full speech

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