George Osborne: Eurozone has six weeks to resolve financial crisis

Osborne said that eurozone must implement measures agreed in July to support troubled members of the single currency George Osborne warned on Friday that the leaders of the eurozone had six weeks to end their political wrangling and resolve the continent’s crippling debt crisis. Speaking in Washington, the chancellor said that the turmoil in the world’s financial markets meant there was now “a far greater sense of urgency” and mounting pressure on Europe from the G20 group of developed and developing nations. “There is a sense from across the leading lights of the eurozone that time is running out for them. There is a clear deadline at the Cannes summit [G20] in six weeks time”, Osborne said. “The eurozone has six weeks to resolve this political crisis.” With global financial markets again in jittery mood, the chancellor said “bad politics” were leading to “bad economics” in the eurozone. “We need political solutions that can help resolve the economic problems.” He added that the eurozone needed to implement the package of measures agreed in July to provide financial support for troubled members of the single currency, as well as ensure banks had enough capital to withstand market pressures. “I wouldn’t say all the pieces of the jigsaw are in place”, Osborne said, adding that the members of the eurozone had to supplement monetary union with closer fiscal ties. While the government had no intention of joining monetary union, the chancellor said it was in Britain’s interests that the eurozone worked. “The break-up of Europe would be bad for Britain”. The chancellor said Europe needed to show that it had enough firepower to convince the markets it was getting ahead of the curve, and made it clear that the €400bn (£350bn) European Financial Stability Facility needs to be beefed up. “I am not sure it is adequate”, Osborne said. The chancellor refused to speculate on whether Greece would be forced to default on its debts, but said the government had contingency plans in the event that the worst-affected eurozone country did capitulate. “I have made it a priority for the Financial Services Authority and the Bank of England to make sure that the UK banking system is adequately capitalised and have sufficient liquidity to deal with all eventualities. We have stress-tested sovereign write downs.” Osborne admitted that the darkening international economic outlook would have repercussions for the UK but insisted that he had no intention of amending his tough deficit reduction plans. It was up to the Bank of England, he added, to support demand over the coming months. “A credible fiscal plan allows you to have a looser monetary policy than would otherwise be the case. My approach is to be fiscally conservative but monetarily active.” His comments come amid signs from Threadneedle Street that it will re-start its quantitative easing programme over the coming months. The Bank pumped £200bn of electronically-created money into the economy between early 2009 and early 2010 in an attempt to lift the economy out of recession. Asked how bad the situation in the UK would have to get before he would consider changing course, Osborne said: “The UK is taking appropriate action. It is very clear what has got to happen. We are sticking to the plan. “These discussions in Washington are about the eurozone and the challenges there not about market pressures on the UK. We have got ahead of the curve and have credibility.” The chancellor said the heavily-indebted state of Britain meant he could not simply “pull a lever” to boost demand. “This was a different sort of recession and it is a different sort of recovery”, he said. The chancellor said there was a certain amount of flexibility built into his budget plans because weaker growth would allow the automatic stabilisers – a bigger budget deficit caused by higher benefit payments and lower tax receipts – to kick in. The government would announce supply side reforms of the economy to remove obstacles to growth over the coming months. European debt crisis European banks George Osborne IMF Economics Global economy Greece Europe Bank of England Banking Financial crisis Global recession Larry Elliott guardian.co.uk

Posted by on September 23, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.