Investors can be confident that fears of a debt contagion “bonfire” across the eurozone were without grounds and that the bloc’s economic future is bright, a senior member of the European Central Bank said on a visit to Korea on Wednesday.
Central Bank of Luxembourg governor Yves Mersch was in Seoul to meet with Bank of Korea head Kim Choong-soo and senior figures in investment, banking and insurance.
Governor of the Central Bank of Luxembourg Yves Mersch (Luxembourg embassy)
Mersch discussed the current situation in Europe, Korea’s experience of handling the global recession and macro prudential policy, and sought to assure Korean investors that Europe’s economic standing was strong. He also delivered a speech on the future of the euro in the international context.
“The euro is also a political project not only an economic and financial one and at its structure it needs political support and commitment, and this support and commitment was delivered at the last summit,” Mersch told The Korea Herald, referring to the most recent summit of European leaders on July 22.
“Europe has taken a lot of measures to deepen its government and one of the fault-lines of the Euro might have been insufficient rule-making in the economic government and this has now been mended,” he added, stressing that deeper European integration was not only about providing funds to weaker countries but also developing stability-oriented policies in those countries.
At the summit EU heads agreed on a 109 billion euro ($156 billion) rescue package for Greece, the country’s second, allaying market fears of a collapse in Euro.
Mersch was quick to dismiss any suggestions that the single currency was unworkable. He said that applying uniform interests rates across different economies, cited by critics as a fatal flaw of the single currency, was no different than the approach of the United States.
“The diversion between European countries is not larger than the diversion between different American states or different Canadian provinces. The economic performance in European countries is also comparable to that of the largest economy in the world. We have a per capita income over the last 12 years which is more or less the same as the per capita of the U.S.,” he said.
He added that “there is a lot misinformation about Europe which simply cannot be substantiated,” citing the perception that Greece’s working hours were particularly low.
“This is not in line with the statistics of OCED which show that working hours in Greece are slightly longer per year than in Germany.”
Despite the perceptions to the contrary, a look at the figures confirms a promising economic outlook for Europe, Mersch said
“We are for the moment having an economic performance for this and next year which is above the growth potential … that unemployment is falling, that inflationary exceptions are well anchored; that the institution which are in charge of the euro on the monetary side can concentrate fully on their objective of delivering price stability over the medium term.”
Mersch also weighed in on the recent passing of the Korea-EU FTA, calling it an important step, but said that completely tariff-free trade between the two economies should be the ultimate goal.
“You can always try to do better in human endeavor but most important is to get things going and then you have to enhance it,” he said.
By John Power (john.power@heraldcorp.com)