EU’s Rehn vows to contain debt "forest fire"

By Kevin Yao and Langi Chiang

BEIJING (BestGrowthStock) – The European Union’s top economic official said the bloc needs to keep its options open about the possibility of issuing a common euro zone bond to fight its debt crisis, an idea that Germany publicly opposes.

Olli Rehn, the EU’s economic and monetary affairs commissioner, told Reuters Insider Television in an interview on Tuesday that the European debt crisis was akin to a “forest fire,” and said the EU was determined to contain the fire.

Rehn said he believed Europe’s economic recovery was solid and sustainable, provided the bloc protects its financial stability.

“We will do whatever it takes to safeguard the financial stability in Europe,” said Rehn, who was in Beijing for annual EU-China trade talks.

“I’m certain that economic recovery in Europe is solid and sustainable. We will contain the financial turbulence so that it will not erode the foundation of the recovery.”

On the chance of the EU expanding the size of its fund used to bail out euro zone countries, the European Financial Stability Facility (EFSF), Rehn hinted discussions were still ongoing.

“My principle is that it’s always better to prepare first before you announce something public,” he said.

Europe’s festering debt problems have marred its economic outlook as investors doubt its authorities would have enough funds to bail out bigger fiscal trouble spots such as Spain and Italy in coming months if necessary, having saved the smaller economies of Greece and Ireland.

Investors would like to see EU officials take bolder steps to address the crisis, including expanding the size of the EFSF and issuing euro zone bonds, both of which the EU has so far eschewed.

China also weighed in on Tuesday, with Commerce Minister Chen Deming, also talking during the EU-China trade talks, urging European policymakers to back their tough talk with action to show they can contain the euro zone debt crisis.

PORTUGAL SETBACK

Rehn, when asked about the chance of the EU either expanding the bailout fund or issuing euro zone bonds, said the bloc should not rule out any options right now.

“We should not close any options at this stage. Instead, we need analytical discussions on what are the best ways,” he said.

Rehn threw his weight behind Ireland, which received an 85-billion-euro bailout from the EU and the IMF, by saying that the country’s economic austerity plan was ambitious but on track.

The euro zone suffered another setback on Tuesday when ratings agency Moody’s warned it may cut Portugal’s rating by one or two notches due to its weak growth prospects and steep borrowing costs, denting the euro in currency markets.

Rehn, however, appeared sanguine on the euro’s struggles and said currency volatility underscored the need for reforms toward more market-determined exchange rates globally. China should let its yuan currency rise faster to better reflect China’s booming economy, he said.

“The volatility in the currency market, in our view, shows that it’s important to work toward reforms of the international monetary systems, which should be based on market-determined exchange rate systems and should reflect economic fundamentals.”

(Additional reporting by Vivi Lin)

(Writing by Koh Gui Qing; Editing by Susan Fenton)

EU’s Rehn vows to contain debt "forest fire"