NEW YORK, April 22 Economic growth in the euro
zone will return only slowly in the second half of the year as
the region continues to work toward repairing the damaged
financial sector, European Union Economic and Monetary Affairs
Commissioner Olli Rehn said on Monday.
In contrast to the United States, the euro zone economy
remains a bank-based system and the repair of the financial
sector needs to be completed in order to unblock private
investment, said Rehn.
"The ongoing process of deep economic rebalancing continues
to impact on the European economy. We expect that growth will
return only quite slowly in the second half of this year," Rehn
told an audience at the Paris EUROPLACE New York Financial Forum
in New York.
"While the United States by and large proceeded with its
financial repair in 2008 and 2009 ... this process in Europe is
still only partially achieved. This is acting as a critical drag
on progress to our economic recovery," Rehn said, adding for the
time being, dependence on financing by banks will still prevail.
Rehn said the European banking union was essential in this
process and called the agreement on a Single Supervisory
Mechanism an important step toward that union.
The EU has agreed that the European Central Bank would take
over the supervision of all banks in the euro zone from July
2014 in what is called the Single Supervisory Mechanism.
The next step is to agree how the euro zone will deal with
closing down failed banks and how it will pay for that in the
interim period before enough fees from the financial industry
accrue to cover the potential expense.
Europe's ongoing reforms have left it vulnerable to halting
progress in reallocating capital to where it is most needed to
spur economic growth.
"In my view this is caused by the still unfinished repair of
the financial system and banking sector," said Rehn.
"One could argue that today's liquidity trap is in fact a
financing trap, at least as regards businesses and households in
Southern Europe. We are fully aware that we have to do something
going forward to overcome this financing trap."