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Statement by President Barroso on the euro area sovereign bond markets

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Developments in the sovereign bond markets of Italy and Spain are a cause of deep concern. These developments are clearly unwarranted on the basis of economic and budgetary fundamentals in these two Member States and the steps that they are taking to reinforce those fundamentals. In fact, the tensions in bond markets reflect a growing concern among investors about the systemic capacity of the euro area to respond to the evolving crisis.


The systemic nature of the sovereign debt crisis was recognised by the Heads of State and Government of the euro area at their meeting of 21 July. At that meeting, a unique solution for the crisis in Greece was found involving a partnership between the official and private creditors, but it was agreed that private sector involvement would not be a standard feature of the euro area’s crisis management. Agreement was also reached on ground-breaking measures that will reinforce the euro area’s systemic response to the crisis by enhancing the effectiveness of the European Financial Stability Facility (EFSF), by reforming euro area governance structures and by adapting our working methods to the needs of crisis management with each institution playing its part. It is essential, therefore, that we move forward rapidly with the implementation of all of that has been agreed by the Heads of State and Government and send an unambiguous signal of the euro area’s resolve to address the sovereign debt crisis with the means commensurate with the gravity of the situation.


The necessary technical work to implement the measures agreed on 21 July is already underway and will be completed as a matter of urgency. The Commission services are actively supporting the Member States in this technical work. Implementation of some of these measures will also require actions by national parliaments and today I am writing to the Heads of State and Government urging them to ensure that these actions are taken without delay.


Brussels, 3rd August 2011


Dear Colleagues,


Developments in the sovereign bond markets of Italy, Spain and other euro area Member States are a cause of deep concern. Though these developments are clearly unwarranted on the basis of economic and budgetary fundamentals and the recent efforts of these Member States, they reflect a growing scepticism among investors about the systemic capacity of the euro area to respond to the evolving crisis. Markets remain to be convinced that we are taking the appropriate steps to resolve the crisis.


The 21st of July bold decisions on the Greek package and the increased flexibility of the EFSF (precautionary use, recapitalisation of banks and intervention in secondary bond markets), are not having their intended effect on the markets. Markets highlight, among other reasons, the global economic uncertainties due to both economic growth and the protracted decision on budgetary adjustments in the US but, first and foremost, the undisciplined communication and the complexity and incompleteness of the 21st July package.


Whatever the factors behind the lack of success, it is clear that we are no longer managing a crisis just in the euro-area periphery. Euro-area financial stability must be safeguarded, with all EU institutions playing their part with the full backing of euro area Member States. We need also to consider how to further improve the effectiveness of both the EFSF and the ESM in order to address the current contagion.


Concretely, I would like to call on you to accelerate the approval procedures for the implementation of these decisions so as to make the EFSF enhancements operational very soon. These changes should also avoid introducing excessive constraints in terms of either additional conditionality or collateralisation of EFSF lending. I trust that governments and national Parliaments will rapidly approve these decisions necessary to improve the EFSF flexibility.


I also take the opportunity to urge a rapid re-assessment of all elements related to the EFSF, and concomitantly the ESM, in order to ensure that they are equipped with the means for dealing with contagious risk.


Finally the Commission stands ready to contribute to the improvement of working methods and crisis management in the euro area.


Yours faithfully,


José Manuel BARROSO


 


 

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