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Europe needs Fed-style crisis mechanism: Stiglitz

02 February 2010, 12:37 CET
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(ATHENS) - The European Union and the European Central Bank should create a crisis mechanism akin to the US Federal Reserve to help debt-hit member-states such as Greece, Nobel lauriat economist Joseph Stiglitz said Tuesday.

"(There is) a lack of European macroeconomic structure to help countries with particular difficulties," he told a conference in Athens.

"In the United States we have a huge national budget that can be allocated to parts of the country that are suffering," he said.

While the European Central Bank regularly lends money to national banks at income rates lower than the international market, the same option is not currently available to governments, Stiglitz noted.

"If you are willing to lend to banks, why not lend to governments? Does Europe not have confidence in the governments that constitute it?" he argued.

"There ought to be assistance through the ECB, through issuing euro bonds, through the European Investment Bank, creating funds that can help support investment, private entreprise, particularly within the countries suffering."

"Any small country in Europe can't do it on its own," Stiglitz said.

Greek Prime Minister George Papandreou, whose administration is trying to restore investor confidence while battling a monster debt expected to exceed 120 percent of output this year, welcomed the idea.

"Eurobonds could be used to lend member states at a lower spread, a lower interest rate compared to the international market, particularly in this environment of speculation," he told the conference.

"If states have real structural problems they would pay something more to borrow ... and that somethihng extra would go to a common European fund to be used for specific needs, both as security for (lenders) like Germany, but also for other investments in the EU," the prime minister said.

But Papandreou noted that debate on the idea was continuing and observed that Greece would be ill-advised to call for a eurobond issue at this stage.

"When Greece talks about eurobonds it unfortunately works negatively, it is seen as a weakness. The issue of the bonds will hopefully happen. But we can't base ourselves on a discussion that we don't know whether it will occur tomorrow."


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