Eurogroup Chair: "Eurozone Will Not Fall into Debt Crisis Like 10 Years Ago"

Paschal Donohoe, Chair of the Eurogroup (Eurozone Finance Ministers Meeting) and Minister for Finance of Ireland
Photo by AFP Yonhap News

[Asia Economy Reporter Park Byung-hee] Pascal Donohoe, chairman of the Eurogroup (Eurozone Finance Ministers' Meeting), asserted that the Eurozone will not fall into a debt crisis again like it did 10 years ago.

According to major foreign media on the 20th (local time), Chairman Donohoe emphasized, "The current situation in the Eurozone is completely different from 10 years ago when the debt crisis occurred," adding, "The Eurozone has become structurally stronger, and the foundation for the euro has deepened."

Chairman Donohoe highlighted the reform measures taken by the EU after the Eurozone debt crisis 10 years ago to prevent a recurrence. In fact, after experiencing the Eurozone debt crisis, the EU established a European-level supervisory body to strengthen bank regulations, launched the European Stability Mechanism (ESM), a permanent bailout fund for the Eurozone, to enhance crisis response capabilities, and the European Central Bank (ECB) also laid the groundwork to purchase Eurozone government bonds.

Chairman Donohoe emphasized his confidence in the EU's ability to navigate potential situations in the financial markets.

As concerns in the financial markets grew due to the sharp rise in government bond yields of Eurozone member countries with high debt ratios such as Italy and Spain, the Eurogroup chairman stepped in to prevent the spread of anxiety.

The government bond yields of Italy and Spain surged significantly around the ECB monetary policy meeting on the 9th. This was because the ECB confirmed at that meeting the expectation that it would raise the benchmark interest rate in July and possibly end quantitative easing. Italy's 10-year government bond yield rose from 3.30% on the 7th to 4.17% on the 15th, and Spain's government bond yield also surged from 2.39% to 3.05% during the same period.

In response to the sharp rise in government bond yields of Italy and Spain, the ECB convened an emergency meeting on the 15th, stating that it would hasten measures to prevent a split caused by widening interest rate gaps among Eurozone member countries as yields in vulnerable countries like Italy rose sharply. Subsequently, the government bond yields of Italy and Spain stabilized somewhat. On the 20th, Italy's government bond yield was 3.67%, and Spain's was 2.82%.

Italy 10-Year Government Bond Yield 1-Month Trend

Regarding the ECB's emergency meeting last week, Christian Lindner, Germany's Finance Minister, criticized the ECB for overreacting. Minister Lindner said the Eurozone is stable and solid, and there is no need to worry about the rise in government bond yields.

The ECB is expected to announce measures to stabilize the government bond market at the July monetary policy meeting, where it has signaled a rate hike. The most likely measure is to stop quantitative easing and instead reinvest the proceeds from maturing government bonds into the bonds of some vulnerable countries.

Chairman Donohoe avoided commenting on the ECB's independent policy decision regarding the use of proceeds to purchase government bonds of specific countries such as Italy and Spain.

Chairman Donohoe also emphasized that the Eurozone economy will continue its growth trend this year and next year. In fact, the economic growth rates currently projected by the ECB for the Eurozone are 2.8% this year and 2.1% next year. However, the ECB expects that if Russia's energy supply to Europe is completely cut off, the Eurozone economy could shrink by 1.7% next year. Last week, Russia's state-owned gas company Gazprom significantly reduced gas transportation through the Nord Stream pipeline connecting Germany and Russia by about 60%, raising concerns about a slowdown in Eurozone growth.

Meanwhile, the Eurogroup reportedly recommended at last week's meeting that member countries shift their fiscal policy stance from mild stimulus to neutral. Considering the ongoing war in Ukraine and energy supply shortages, government support is still necessary, but there are concerns that excessive fiscal support could fuel inflationary pressures.

This content was produced with the assistance of AI translation services.