The European Union's economy is showing the first positive signs amid its biggest crisis since the grouping's foundation 50 years ago, but it is not yet in recovery, the EU's top economic official said today.
Economic and Monetary Affairs Commissioner Joaquin Almunia told a business forum that financial markets have stabilised and short-term interest rates come down sharply.
"There are signs that stock markets may be stabilising and financing conditions for companies appear to be improving if we consider the large wave in corporate bond issuances in the last months," Mr Almunia said.
He said that also in the real economy there were some positive signals from business confidence and export data. The results of fiscal and monetary stimuli should begin to feed through in the coming months, he added.
"But let's be honest. Although there are signs that the recession is easing, a return to growth is not yet there," Mr Almunia said.
He urged European governments to implement quickly their fiscal stimulus programmes to speed up recovery but also to be ready to withdraw them once growth begins.
He said that apart from fiscal stimulus, governments should focus on limiting the negative impact of the slowdown on labour markets and speed up the restructuring of banks.
"We need a full disclosure of losses so government support can be provided in the most efficient manner. And we need to push the process of bank restructuring forward," Mr Almunia said.
"The crisis will never be resolved by simply pouring vast amounts of public money into an ailing banking sector. This was the Japanese approach of the early 1990s and it led to a decade of zombie banks, low growth and deflation," he said.
He said the European Commission was encouraging EU countries to stress-test their banks in order to see whether they were adequately capitalised should the economy deteriorate further.
"We encourage member states to ... complement these efforts with stress-test exercises," Mr Almunia said.
EU finance ministers have asked the Committee of European Banking Supervisors to set guidelines for a pan-EU stress test of the whole banking system with results due in September, but likely to remain confidential.
The pan-EU test would be for the system as a whole rather than singling out individual banks like in the United States because the EU believes it is up to national authorities to test their financial institutions.
Reuters