Eurozone countries remain vulnerable to another crisis because they don’t have the fiscal space to absorb future shocks, the outgoing head of the Eurogroup has warned.
Jeroen Dijsselbloem, who heads up the group of finance ministers from the 19 euro area countries, said the bloc’s capacity to deal with future shocks is “very thin”.
“You could argue that we’ve used a large part of the monetary instruments, the tool box of the European Central Bank,” Mr Dijsselbloem told the Institute of International and European Affairs during a visit to Dublin.
“It’s uneven but, generally speaking, governments in the eurozone don’t have a lot of fiscal space to absorb any future shocks. And therefore we are still very vulnerable to an event that could come in the next years. So more work needs to be done.”
Mr Dijsselbloem said governments now need to use this period at a national level to help create more fiscal space to create that buffer.
“We need to make sure that on the public and private side, the capacity to deal with future adverse shocks is improved,” he said.
But he also said much work has been done at eurozone level to ensure the bloc can better weather another crisis.
“If you realise now what little we had when we went into the banking crisis, [it was] pretty disgraceful,” said Mr Dijsselbloem, who is also the outgoing Dutch Finance Minister.
“We told our deposit holders that they were insured. Very few member states had any preparation in place. Many member states had banking sectors in size and risk out of their span of control. So we’ve made a lot of progress already. Banking sectors are much better capitalised, better supervised. We are building up a resolution fund, we have the frameworks, so things are a lot more stable so we can manage shocks better already.”
Mr Dijsselbloem is leaving national politics in the Netherlands this week, and will take up a position as an adviser to the European Stability Mechanism (ESM). He will complete his term as chair of the Eurogroup, which expires in mid-January.
Mr Dijsselbloem’s Labour party was heavily defeated in the March election and will not be part of the new government, which was only agreed earlier this month.
He has served as Eurogroup chair since 2013.
The ESM has appointed Mr Dijsselbloem as strategic adviser. He will hold this position as an external service provider to the ESM until the end of his term as Eurogroup President.
Referring to the rise of the far right and populist parties in Europe, Mr Dijsselbloem said it is still “extremely worrying”.
“Some people have said that the outcome of the elections in the Netherlands and France has been quite moderate. I don’t agree with that. The extreme right has again grown in the number of seats in the Dutch parliament and done extremely well in the Presidential elections in France,” he said.
The Dutch politician also said that discussions on the next EU budget will be “hugely complex”.
“Are we going to downscale the budget to the size of the UK population or the UK contribution and how are we going to redistribute the costs?” he said.
He said there is also a debate around the Common Agricultural Policy (CAP).
Mr Dijsselbloem said he is not an EU federalist, but joint EU action on issues such as border control and defence should be looked at.
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