4 Aug 2011

Barroso urges action to avert eurozone crisis

The head of the European Commission Jose Manuel Barroso urges eurozone countries to move quickly to convince the markets that they have the financial crisis under control.

'Move quickly to avert eurozone crisis' says European Commission's Barroso (Getty)

In a letter to European governments, the European Commission (EC) President said the crisis is not just on the “euro area periphery” and said all EU members states and institutions needed to play their part to ensure stability.

Jose Manuel Barroso said more action had to be taken to stop the uncertainty in the markets spreading further, after the cost of borrowing for both Italy and Spain reached unsustainable levels on Wednesday.

“Markets remain to be convinced that we are taking the appropriate steps to resolve the crisis,” he said.

In another sign the crisis could be spreading further, it appears Belgium may have been added to the eurozone watch-list.

The finance director of Lloyds Banking Group, Tim Tookey, revealed today that the Financial Services Authority (FSA) has asked UK banks to detail their exposure to Belgian sovereign debt.

He said the FSA had added Belgium to a list of countries with sovereign debt problems, along with Portugal, Ireland, Italy, Greece and Spain.

Market scepticism over rescue package

Eurozone governments had hoped that a package of measures designed to prevent Greece defaulting, agreed on 21 July, would be enough to ensure stability.

But Mr Barroso said the”undisciplined communication” of the package and its “complexity and incompleteness” had not reassured the markets, leading to the pressures on Italy and Spain. He said that while he believed market worries were unnecessary because of strong fundamentals as well as the recent rescue measures, those pressures had persisted.

Read more: why the eurozone crisis is a political crisis

He said the developments in the sovereign bond markets “reflect a growing scepticism among investors about the systemic capacity of the euro area to respond to the evolving crisis”.

Mr Barroso urged European leaders to review “all elements” of the bailout package, including the size of the 440bn euro European Financial Stability Facility (EFSF) and the 500bn euro European Stability Mechanism that will replace it in mid-2013.

The deal empowered the EFSF to lend pre-emptively, buy bonds, and become involved in bank recapitalisations, but official approval of the measures has been delayed by the parliamentary summer break across Europe. Mr Barroso called for governments to speed up the process of approval so that action could be taken.