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Financial stability needed to avoid “baptism of fire”, says EC President 0

European Commission President Jose Manuel Barroso urged the European Central Bank (ECB) on Wednesday to do everything in its power to maintain financial stability in the euro zone, saying the EU faced the biggest challenge in its 50-year history which he says may result to a “baptism of fire”.

Delivering his annual “State of the Union” speech to the European Parliament, Barroso set out a range of steps the euro zone needed to take get on top of the 20-month debt crisis, including rapid approval of an agreement struck on July 21 to bolster the European Financial Stability Facility (EFSF) bailout fund and help recapitalise banks.

“Today, we are facing the biggest challenges that this union has ever had to face throughout its history — a financial crisis, an economic and social crisis, but also a crisis of confidence,” Barroso said.

“If we do not move forward with more unification, we will suffer more fragmentation,” he said. “I think this is going to be a baptism of fire for a whole generation.”

Barroso’s comments came as lawmakers in Finland and Germany prepare to vote on measures that will give the 17 countries that use the euro more powers to fight a debt crisis that’s already led to Greece, Ireland and Portugal to seek bailouts. Greece is lumbered with so much debt that many in the markets think it will have no option but to default.

Barroso called the debt crisis, which has also now threatens Spain and Italy and the wider global economy, a crisis of confidence that had infected finance, economics and society.

In a signal that in the short term the ECB, with its unlimited access to liquidity, may be the only European institution capable of staving off the pressure on weaker euro zone states, Barroso called on the central bank to step up.

“We trust that the European Central Bank — in full respect of the (EU) treaty — will do whatever is necessary to ensure the integrity of the euro area and to ensure its financial stability,” he said.

In other initiatives put forward in the speech, which Barroso has adopted as a way of weighing up the direction of the EU in much the same way the U.S. president does in his State of the Union address to Congress, the Commission president advocated tighter financial regulation in a number of areas.

There are already measures to impose tighter controls on derivatives trading, naked short-selling and bankers’ pay. Barroso said proposals would be delivered by the end of the year to crack down on ratings agencies, and said work was continuing on a tax on financial transactions (FTT).

“In the last three years, member states have granted aid and provided guarantees of 4.6 trillion euros to the financial sector. It is time for the financial sector to make a contribution back to society,” he said, adding that such a tax could raise as much as 55 billion euros a year.

Such a tax is strongly opposed by the United States and Britain, which has the EU’s largest financial centre.

Meanwhile the The international alliance of Catholic development agencies, CIDSE has called on  Finance Ministers of all EU member states to endorse the plan when they meet on 5 October 2011, making sure sufficient money is earmarked for the fight against poverty and climate change.

Bernd Nilles, Secretary General of CIDSE, said: “With this firm legislative proposal by the European Commission an important victory for justice and solidarity is in sight. The Commission has made a good serve and now the ball is in the court of EU member states. They must make it game, set, match by backing the tax.”

The Directive by Barroso would establish an EU-wide tax applied on a broad range of financial transactions ranging from stocks and shares to futures and derivatives in organised markets and over-the-counter trading.

But CIDSE says it is inconceivable that they would simply go to replenish the EU budget or national coffers. Among many fears CIDSE points out that most people from developing countries like Africa may be sidelined and hence not feel the benefit. Pointing out those social problems like poverty should also be at the centre stage of the directive’s objective.

“For the FTT to work for people and the planet, the money should not only end up in the black hole of budget deficits. The case for an FTT has been built up on promises made to tackle poverty and climate change – this funding must be secured,” Nilles said.

By Staff Writer – Afronline.

Sources: CIDSE, BBC Europe , Finacial Times Europe, Voce of America, Reuters, Guardian.co.uk,

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