01 June 2011

Commissioner Rehn: The current stage of the crisis is a combination of a sovereign debt crisis and banking sector fragilities

Rehn highlighted that the first essential element of the comprehensive response is to complete the financial repair in Europe. This is why supervisors are currently conducting a new round of bank stress tests, which are being carried out across the EU and managed by the recently established EBA.

Commissioner Rehn mentioned that the tests will identify pockets of vulnerability in the banking system, and once identified, vulnerable banks must be either restructured and/or recapitalised. EU Member States have committed to putting remedial plans in place to that effect prior to the publication of the results.

The other dimension of the crisis is the still cumulating sovereign debt. Even if public debt as a share of GDP is on average lower in Europe than in the US, we are convinced that putting the debt-to-GDP ratios on a downward path is a pressing priority for all EU Members States.

For some EU Member States, like Greece, there has simply been no choice to fiscal consolidation. If you are shut out from the private debt market, you need to put your fiscal house in order to regain access to market financing. For other Member States, it is obvious – and in fact confirmed by economic modelling exercises – that fiscal prudence is positive for growth and employment in the medium to long run.

Full speech

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