EU crisis ‘won’t go away’ until debt and banks tackled

EUROPE’S debt crisis won’t be resolved until a number of country’s restructure their debt and clean up their banks’ balance sheets, said Citigroup chief economist Willem Buiter.

“It won’t go away until Europe restructures a couple of sovereigns and deals with its dummy banks,” Mr Buiter said in an interview on Bloomberg Television in London, adding that probably meant debt restructuring for Greece and Ireland, though not Spain.

“All that’s been done so far is to kick the problem down the road.”

Mr Buiter, a former Bank of England policy maker, also said European Union leaders who are refusing to soften the terms of the aid package to Ireland risk forcing the country to restructure its debt unilaterally.

EU leaders agreed at the weekend to increase the effective lending capacity of its bailout fund to €440 billion, a move Mr Buiter said hasn’t solved the underlying problems that led to the crisis.

Eurozone finance ministers meet in Brussels on March 21 and EU leaders gather there again three days later to hammer out the details of their plan.

While the bloc agreed to cut the rate it is charging Greece on rescue loans, Germany and France suggested Ireland would have to raise its corporate tax rate before they would give it additional help.

“They have to come up with something for Ireland,” Mr Buiter said.

“They’re going to have to make concession or Ireland will have no option but to go it alone. The Europeans are playing with fire with this brinksmanship.”

Taoiseach Enda Kenny has so far refused to buckle under pressure from German Chancellor Angela Merkel and French President Nicolas Sarkozy as he pushes for relief on the 5.8% interest rate Ireland is paying on the €85bn EU/IMF rescue package it received in November.

Finance Minister Michael Noonan said on Tuesday that raising the corporate tax rate, which at 12.5% is about half the EU average, is “out as far as we’re concerned.”

Mr Buiter also said that Mario Draghi is “clearly the man for the job” to replace Jean-Claude Trichet as president of the European Central Bank later this year.

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