LUXEMBOURG: EU finance ministers were warned yesterday of the “dramatic consequences” a US debt default could have as they discussed how to prevent failing banks from ever again collapsing their own economies.
“It is very important that the US overcomes its fiscal gridlock,” EU Economic Affairs Commissioner Olli Rehn said as efforts continue in Washington to find a solution before the US government runs out of cash to pay all of its bills as soon as Thursday.
“Otherwise it could have potentially dramatic consequences on the world economy and on the still nascent recovery in Europe,” Rehn said.
Christian Noyer, governor of the French central bank, was blunt. “If we were to have ... an accident over the American debt it would be, as the IMF has said, a thunderbolt for the financial markets,” Noyer told Le Figaro daily.
The United States faces the prospect of its first ever sovereign default if no agreement is found between Republicans and President Barack Obama’s Democrats to raise country’s debt ceiling and allow the government to borrow more funds.
Meanwhile, a senior European Central Bank official said the bloc had made progress on its Single Supervisory Mechanism and could now speed up work on a wider regulatory regime for the banks. “This is really very good news,” European Central Bank executive board member Joerg Asmussen said.
“We are very confident that European Union finance ministers can now agree the legal basis for the SSM,” Asmussen said.