Prodi Says Speculation ‘Fear’ Shows Need for EU Crisis Reserve
March 5 (Bloomberg) -- Former European Commission President Romano Prodi said
the European Union needs a budget reserve to aid crisis-hit members as
economies from Ireland to Italy face the threat of speculative attack by
investors.
“My fear is now that one day it will be Lithuania, Latvia outside the euro,
then it can be Ireland, then it can be Portugal, then Spain, then Italy,” Prodi
said in a speech late yesterday at Oxford Said Business School in Oxford,
England.
Prodi’s call for a permanent reserve goes further than policy makers including
European Central Bank Council member Christian Noyer, who said this week that
euro-area governments should help out if a member country is in need. Ireland
now has the riskiest debt in the region and faces the threat of losing its
top-ranked credit rating.
“We could do reform in the short run: increase the European budget not for
straight expenditure but just for reserve, for intervention in case of
speculation or attack to some specific countries,” Prodi said.
Prodi also called for the common issuance of euro- denominated bonds as a
measure to help ensure the region’s financial stability.
“To have an instrument for collective intervention, in my opinion a Eurobond is
the easiest,” Prodi said. “In case of attack to some euro member you can have a
strong answer.”
Lack of Consensus
Prodi’s successor at the European Commission, Jose Barroso, said yesterday that
some members are “dead set” against the common issuance of euro-denominated
bonds, though he finds it an interesting idea.. ECB President Jean-Claude
Trichet reiterated last week that he’s not in favor.
Prodi’s comments on the crisis follow concern on the creditworthiness of some
European economies. Spain lost its AAA rating at Standard & Poor’s in January,
and ratings for Greece and Portugal also were cut. Moody’s Investors Service
has lowered the outlook on Ireland’s rating to “negative.”
“We cannot imagine that a country at the heart of the euro zone would
collapse,” Bank of France Governor Noyer said on March 3. “In a crisis like
this one, you cannot avoid having some solidarity in the case of tension.”
Prodi reiterated his call for greater European political union and said the
crisis has shown the weakness of the EU’s consensus-based decisions. He said
last weekend’s EU leaders’ summit demonstrated the pitfalls of disunity.
“When you gather for an urgent meeting and don’t take decisions, the message is
negative,” Prodi said. “You feed fears..”
Prodi was president of the European Commission, the EU’s executive arm, from
1999 until late 2004. He served as Italy’s prime minister for 20 months until
the collapse of his government in January 2008, paving the way for Silvio
Berlusconi’s return to power at the helm of a three-party coalition in a
general election in April last year
