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EU confident Europe will overcome crisis

EU confident Europe will overcome crisis

May 18th, 2012 by EDITH M. LEDERER, Associated Press in News

UNITED NATIONS (AP) - The head of the European Union Commission told the U.N. General Assembly on Thursday that he is "fully confident" the 17 countries using the euro and all European institutions will do whatever is necessary to overcome the current financial crisis.

Commission President Jose Manuel Barroso said that despite all the difficulties, he was bringing the 193-member world body "a message of confidence" that the European Union is "on the right track."

"We are doing a root-and-branch reform of our budgetary and economic policies," he said. "And, beyond the so-called 'sound and fury,' we are making good progress in laying firm foundations for strong economic recovery and sustainable growth."

But Nobel economics laureate Joseph Stiglitz told the assembly "the best that can be said for Europe and the United States is that they look forward to a long malaise, slow growth or stagnation." And former U.S. Federal Reserve Chairman Paul Volcker said "we are indeed in a dangerous situation" and prospects for growth have been complicated "by the apparent fragilities in Europe."

In a keynote speech at the opening of a two-day high-level meeting on the state of the world economy, Barroso said Europe's key concern - like most of the world - is economic growth, "but not growth driven by unsustainable borrowing."

"In Europe," he said, "it is quite clear that for growth to come back to more important levels and to restore confidence, we need fiscal consolidation, structural reform and targeted investment."

In prepared remarks released by his office in advance of his speech, Barroso reaffirmed that the EU wants Greece to stay in the euro zone. "And the European Union will do all it takes to ensure it ... and we expect the Greek government - current and future - to fulfill the jointly agreed conditions for financial assistance," he said.

But in the speech he delivered to presidents, ministers and diplomats from many nations, Barroso dropped all references to Greece or its international bailout deal, under which it agreed to strict austerity measures in return for billions of euros in rescue loans.

Instead, he focused on the EU's "robust response" to the crisis over the past two years in repairing its banking system, strengthening economic governance, setting up financial firewalls "and providing unprecedented solidarity to member states more exposed to the crisis."

He pointed to the permanent rescue fund known as the European Stability Mechanism with "a firepower of 500 billion euros (some $650 billion)."

Since the key is sustainable growth, Barroso said, the EU will move forward with bonds to finance infrastructure projects in transport, energy and the digital area which he expects will attract funding of up to 4.6 billion euros a year over the next two years.

He said the commission has also proposed boosting the capital of the European investment bank by at least 10 billion euros to make available much needed funding to support job creation and an EU budget for the next seven years shifting the focus of spending to measures that enhance growth and increase competitiveness.

In light of these actions, Barroso said Europe is on the right track to recovery. He conceded that the commission would have preferred the response "to be quicker and to be sometimes bolder," but cited the difficulty of getting support from all 27 EU members.

Despite the independence of EU member nations, Barroso said, "I am fully confident in the commitment of European member states, namely in the euro area, and also all the European institutions, including naturally the European Central Bank, to do whatever is necessary to overcome the current challenges."

He said the lesson from the financial crisis is that all countries are interdependent.

"No country can sustainably prosper on the debris of its partners' economies," Barroso said. "In today's world, no country is an island. That's why it is critically important to avoid any form of protectionism. This will be self-defeating."

Volcker, who has been pressing for implementation of a rule he proposed which would restrict banks from trading for their own profit, told the assembly that it was the freeing of trade and markets that drove more than a decade of strong world economic growth that climaxed in the first years of the 21st century.

"To retreat now in response to internal economic and political pressure could only undercut prospects for future growth and productivity," he warned. At the same time, he emphasized the need for global regulatory efforts.

Stiglitz, a professor at Columbia University, stressed that "austerity has not worked and will not work," saying no large economy has ever recovered from an economic slowdown or downturn of the magnitude that is facing Europe and the U.S. today through an austerity program.

"This decade will be the lost decade for Europe and America ... as a result of flawed economic policies," he said.

U.N. Secretary-General Ban Ki-moon said that since the crisis began 200 million people have lost jobs and income, and in too many places poverty and inequality are on the rise.

"Let us face the facts: the old model is broken," he said. "We need to create a new one - a new model for dynamic growth."

That model must spur growth that is equitable, sustainable, and can create more than 400 million new jobs that will be needed worldwide over the next decade, Ban said.