PARIS (MNI) – Eurozone governments must act quickly to cut budget
deficits and debt in order to lift the cloud of tension and uncertainty
hovering over the financial system, Bank of France Governor Christian
Noyer wrote in the letter of introduction to the bank’s annual report,
published Monday.

Noyer noted that nagging doubts about whether sovereign states
would be able to honor their debts have undermined confidence and
encouraged market speculators. But it would be mistaken to “reduce the
crisis only to its speculative aspect,” Noyer wrote.

The vast majority of sovereign debt holders are long-term investors
looking for attractive yields and security, and behind these
institutional investors are households anxious to save, protect their
assets and their future revenue.

“We therefore have a double interest in calming the crisis having
doubts about the solvency of states disappear,” Noyer said. “That means
that the sustainability of public finances must be reestablished
everywhere quickly and clearly. That also means that [France] can not
remain on the sidelines of the general movement being undertaken in this
respect, notably in Europe.”

Public deficits “threaten and compromise growth, because they
undermine confidence,” Noyer said. “Rebalancing of public finances and
supporting growth can no longer be seen as two incompatible objectives,”
he added.

“To rebalance public finances is to reestablish confidence,
contribute to the reduction of interest rates and thus create, both
immediately and for the future, the conditions for stronger growth.”

The Bank of France governor asserted that the sovereign debt crisis
has shed light on the weaknesses in Europe’s economic governance,
showing the limits of a macroeconomic surveillance plan that is “too
soft and insufficiently reactive” to avoid large imbalances of the kind
that have led to this crisis.

The crisis “has shown that big and last divergences” in
competitiveness among Eurozone countries is “incompatible with belonging
to a common currency,” he said. “The euro is a common asset: its
management cannot tolerate divergence from the rules of the game that
are fixed in the treaty and in the Stability and Growth Pact.”

Noyer reiterated the ECB’s fierce attachment to price stability,
saying that because of it, inflation expectations have been anchored in
line with the ECB’s inflation goal — less than but close to 2% —
throughout the crisis. At the same time, he said, “monetary and
financial conditions have remained very favorable to growth.”

Noyer noted that the global economy is “gradually” exiting the
crisis, though unevenly. Most of the emerging market economies are
dynamic and growing again at rates not far below their potential growth
before the crisis. In the Eurozone, however, national economies are
performing divergently, he said.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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