BRUSSELS (MNI) – EU Economic and Monetary Affairs Commissioner Olli
Rehn on Tuesday reaffirmed the European Commission’s five-point plan for
tackling the sovereign debt crisis.

First, he said, the EU needs to arrest contagion by building much
stronger financial backstops, including by maximizing the firepower of
the Eurozone’s bailout fund, the European Financial Stability Facility.

The Commission also supports advancing the EFSF’s permanent
successor, the European Stability Mechanism, he said in a speech
delivered by video to a conference in Portugal.

Second, confidence in Europe’s banks needs to be restored to “break
the vicious circle between the sovereign debt problems and banking
sector fragilities,” he said.

“The main elements of this plan are a prudent valuation of all
sovereign bonds holdings, a higher ratio of high quality capital, and an
ambitious timetable,” said Rehn.

A “sustainable solution for Greece” is also critical, Rehn said,
adding that “it is clear that the Greek part of the 21 July deal needs
to be revisited, in particular concerning the degree on participation of
the private sector in restoring solvency. We need to build a solid
second programme, avoiding the continuous current drama,” he added.

EU countries need also to accelerate structural reforms to enhance
growth and further strengthen economic governance among the 17 members
that share the euro, Rehn continued.

“We may need to go beyond the six-pack, and develop a long-term
vision, which combines stricter monitoring and discipline with more
integration,” he warned, referring to new legislation adopted by the EU
only this month.

EU leaders and finance ministers are expected to discuss these
issues over crucial meetings in Brussels this weekend. The meetings will
be closely followed by governments of the world’s 20 biggest economies,
which last week urged the EU to get a grip on its crisis, which
threatens the world economy.

Rehn’s message to his Portuguese audience, recorded before the
government announced its new budget, stressed that a “strong 2012 budget
is more crucial than ever in the light of the experience in 2011.”

Although he praised the government’s commitment to meeting the
terms of its EU-IMF bailout aid, the EU Commissioner warned that “in
spite of these efforts, the latest information suggests that there are
risks to attaining the 2011 deficit target as specified in the
programme. This is unfortunate, and underscores failures in budget
planning and execution, which need to be fixed.”

The European Commission is expected to give a first reaction to
Portugal’s new budget, announced last night, at its regular noon
briefing.

— Brussels bureau: +332495228374; pkoh@marketnews.com —

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