Eurozone situation has 'significantly worsened' - ECB Council member

European Central Bank governing council member Christian Noyer has said that Europe's debt crisis had significantly worsened, threatening global financial markets, however, he was confident the euro area would emerge stronger and more cohesive.

30 November 2011, 12:00am

1 min read

European Central Bank Council member Christian Noyer of France

"The situation in Europe and the world has significantly worsened over the past few weeks," Noyer said at a conference in Singapore. "Market stress has intensified."

"We are now looking at a true financial crisis - that is a broad-based disruption in financial markets."

Italy's borrowing costs hit a euro lifetime high of nearly 8 percent yesterday, heaping more pressure on fractious euro zone leaders to staunch a two-year-old debt crisis that is threatening to splinter the euro zone bloc and push the world economy into a recession.

"In a period of intense market disruption, it is essential to ensure that the monetary policy transmission mechanism actually works. This may involve temporary and exceptional interventions on those market segments where dysfunctions are most apparent," Noyer said.

He did not elaborate on the remarks.

"The essential weakness of Europe does not primarily lie in the fragility of any of its components," Noyer said. "Europe's fragility comes from its difficulty to organise and manage in times of crisis the complex interactions occurring at the heart of its financial system."

"It is essential to stabilise European bond markets. We have to recognise that the necessary degree of fiscal adjustment is heavily dependent on the level of market confidence."

European banks have been hoarding cash instead of lending for fear of one another's exposure to euro zone debt, adding to strains in the financial system. The cost for European banks to swap euros into dollars is edging closer to levels last seen at the height of the global financial crisis in 2008.

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Ireland and Spain had surpluses before the crises. But they thought that haveing limited fical deficits was necessary, and sufficient for protecting the economic framework and, and that was wrong.The ECB is the only instition that has the kind of flexibility that is necessary to deal with the crises.They have to recognise the framework of "Austerity" is not the way to go.