Investors’ concerns about fiscal deficits and public debt sustainability within the Eurozone are shown in the widening of peripheral countries sovereign debt spreads. Doubts about sovereign solvency have an immediate effect on the Eurozone banks through national government debt held on their balance sheets. At the same time, stress in the banking system can affect the sovereigns through the potentially big fiscal consequences of a bank rescue. Our current two interrelated sovereign and banking crises have shown the inadequacy of Monetary Union institutional design to react promptly and properly when economic and financial crises are deep and long. Short term actions and short and medium term institutional changes – like a broader ECB mandate, the building of a Banking Union and more and more fiscal integration – are necessary measures. But, as highlighted in Ms Salgado´s presentation, they are not enough. What is urgently required is that peripheral Eurozone countries reduce their current account deficits and recover growth through increased competitiveness and structural reforms. Failing to achieve this objective will mean that the high levels of overall debt, public and private, will continue to constitute one of Europe´s greatest sources of economic and financial vulnerability.
Elena Salgado currently works as an independent Strategy Advisor and Economic and Financial Consultant. She is also member of different Boards at Latin American and Spanish Companies. Until December 2011 she was Minister of Economy and Finance and Deputy Prime Minister in the Spanish Government. She was also Minister for the Public Service and the Regions (2007-2009) and Minister for Health and Consumer Affairs (2004-2007). She has many years of experience in the private sector, in the industries of energy and telecommunication.
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