BERLIN – The C750 billion ($1 trillion) rescue loan package only bought eurozone countries more time, it didn’t resolve the continent’s underlying debt problem, the European Central Bank’s chief economist says.
The market turmoil will only calm down if the 16 eurozone member states reform their economies and reduce their deficits, Juergen Stark told the Frankfurter Allgemeine Sonntagszeitung newspaper on Sunday.
“We bought time, not more than that,” he was quoted as saying, adding the euro was not in danger “but in a critical situation.”
Stark urged European Union leaders to use the limited time to introduce new rules to increase stability and growth, stressing the need for new automatic sanctions for countries that don’t abide by the EU’s debt rules.
“The process has to be depoliticized,” he was quoted as saying.
In the wake of Greece’s debt crisis, the euro has come under intense pressure, due to fears about problems spreading to other heavily indebted eurozone countries. The euro sank to near a four-year low against the dollar on Friday in late New York trading, buying $1.2355.
Another top German top banker, meanwhile, expressed doubts about Greece’s ability to repay its huge debts in an orderly fashion.
Dekabank’s chief economist Ulrich Kater on Sunday told the German news website Handelsblatt that he shares the doubts voiced by Deutsche Bank AG’s Chief Executive Josef Ackermann.
“It will be very, very difficult for Greece to orderly repay its debt,” he was quoted as saying.
He said Greece’s new austerity measures and its lack of competitiveness were dooming its prospects for economic growth, making debt reduction difficult.
Ackermann, CEO of Germany’s biggest lender, caused outrage and nervousness on already jittery markets by publicly doubting Greece’s ability to repay its debt and mentioning the possibility of a debt restructuring.
In Athens, Greek Prime Minister George Papandreou said he is not ruling out taking legal action against U.S. investment banks for their role in creating the spiraling Greek debt crisis.
“I wouldn’t rule out” going after the U.S. banks, he told CNN on Sunday.
The government and many Greeks have blamed international banks for fanning the flames of the debt crisis with comments about Greece’s likely default.
The Greek leader also said a parliamentary investigation will soon examine the rapid swelling of Greece’s debt and the country’s banking practices.
The European Union and the International Monetary fund have approved a C110 billion ($136 billion) bailout package for Greece.
In an interview with German news weekly Der Spiegel to be published Monday, the European Central Bank president said Europe’s economy “is in its most difficult situation since World War II or perhaps even since World War I.”
Jean-Claude Trichet said the eurozone’s debt crisis had provoked a market reaction similar to that at the height of the global financial crisis in 2008.
“The markets didn’t function anymore, it was almost like in the wake of the Lehman (Brothers) bankruptcy in September 2008,” Trichet was quoted as saying.
Trichet also urged European leaders to take further action to address the crisis’ underlying problems, calling for a “quantum leap” in control of financial and economic policy across the 16-nation currency zone.
“We need improved structures, to avoid and sanction wrongdoing,” Trichet was quoted as saying.
