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Germany is Europe's biggest economy and it has exercised a great deal of muscle in trying to guide the eurozone through the financial crisis and a recession that continues to grip much of the region, particularly some of the southern countries. "It is now essential that we maintain the momentum on building a Banking Union, and in the Member States that we not allow any room for complacency but stay the reform course" with regard to labour markets and pension systems, Rehn said at a Thomson Reuters Newsmaker event in New York. It was also essential, he said, to spur economic growth in order to remove the long shadow of high unemployment.
According to the latest International Monetary Fund World Economic Outlook forecast, the economic output of the euro area nations is expected to contract by 0.3 per cent this year. Output is forecast to rebound in 2014 with a 1.1 per cent growth rate. "There are certainly risks", Rehn said. "One is political instability, the other risk is policy and reform fatigue and complacency", adding that EU countries still need to tighten their belts.
Some economists and politicians have criticised EU austerity policies for forcing countries to reduce their deficits too quickly, which severely hampers growth. Rehn said the ideal approach would be a more gradual pace of fiscal consolidation. "That's the ideal way of doing it. But we don't live in an ideal world", he said, adding that neither Europe nor the United States has done enough to reduce deficits.
Rehn said there were some fragile "green shoots" of economic growth in Spain. In France, the pace of reform is moving in the right direction but not quickly enough, he said.
Rehn said slower US growth could hurt the European economy. Addressing the debt ceiling debate, he added: "I trust common sense will prevail".