Luxembourg’s Finance Minister Luc Frieden visited the Atlantic Council for an important speech and discussion on the future of the Eurozone on February 13. The event was part of the ongoing Mapping the Economic and Financial Future Speakers’ Forum co-hosted by the Council’s Global Business and Economics Program  and Deutsche Bank. Clay Lowery, vice president of Rock Creek Global Advisors, LLC moderated the discussion.
Frieden joined the Council as part of his quick tour of Washington where he also met with US Treasury officials to describe the EU’s response to its ongoing Eurozone crisis. Frieden laid out his vision for the resolution of the crisis, and underlined several important points.
Greece holds the key to its continued membership in the monetary union.
Emphasizing that keeping Greece in the Euro remains the preferred outcome, Frieden noted that it is up to Greece to successfully implement its austerity measures in order to receive continued financial support. Europe’s creditor nations have made their best offer—in coordination with the IMF—and now Greece’s political leaders must firmly commit to following their prescribed path to debt sustainability.
Europe is prepared to move on without Greece if it is unable to fulfill its obligations.
Europe is better prepared to handle a Greek default and exit from the Euro than they were just a few short months ago. “If they don’t do all this, then we must go on with 16 countries. If they don’t do this, they exclude themselves from the Eurozone, and the impact of the other countries would now be less important than a year ago,” he stressed. With the establishment of the European Financial Stability Facility, and the European Central Bank’s recent bond purchases and extension of cheap credit to European banks.
Working in partnership with the emerging markets, the US can and should do more.
Given the interconnectedness of the transatlantic economy, the United States has an enormous stake in the future of the Eurozone and a huge interest in preventing an outright collapse. With that in mind, Frieden called on his American counterparts to increase their commitments to the International Monetary Fund to strengthen existing firewalls. In response to a question from the audience, Frieden agreed that emerging economies like China and Brazil should also increase their lending to the Fund, especially considering their increasing share of global GDP.
Europe needs a clearly-defined vision for future growth to win public support for austerity measures.
Frieden underscored the need for a better articulated vision for the future of economic growth and integration in Europe. As we have witnessed with the ongoing riots in Athens, when electorates fail to understand how today’s austerity measures lay the essential groundwork for tomorrow’s prosperity, social unrest is inevitable. Europe’s leaders need to do a much better job of clearly outlining the way forward in Europe—or risk losing even more political legitimacy in the eyes of their voters.
This speaker series is hosted in partnership with Deutsche Bank.