Local view for "http://purl.org/linkedpolitics/eu/plenary/2007-09-05-Speech-3-195"
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"en.20070905.21.3-195"2
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"Mr President, the current financial instability should not have come as a surprise, but when it materialised, everyone was shocked. Insecure consumer and property loans gave rise to a growing demand for liquidity. Market corrections are occurring because for a long time money has been too cheap, and this has eroded standards for evaluating investments. A lack of confidence in the market has damaged even attractive assets, which ought not to have been subject to the downward price correction. We can now be sure that easily accessible, cheap money does not create stable growth. The foundation for stable growth is the proactive reform of systems, effective investments and markets that function more freely and more transparently. At the moment the main fears revolve around the liquidity crisis turning into an insolvency crisis. Instability that starts off in the form of a liquidity crisis can degenerate into an insolvency crisis, since market participants, convinced that their level of knowledge is inadequate, will be unwilling to lend to each other. The property crisis may create serious complications in several EU Member States, not just in the United States. Investors and depositors will not recover confidence in the financial market until they are convinced that evaluations are correct. This means that risk premiums may increase, and as a result company and household consumption will decrease. This could reduce investment movements or, in some cases, even bring them to a halt. Europe’s fiscal and monetary policy makers must be ready for this. The main responsibility for stabilising the situation will fall to fiscal policy makers. In the monetary policy sphere we can expect lower interest rates, which many European politicians have been longing to see. At the same time the market should not harbour the misleading belief that risky investments will remain. Both loan rates and demands for collateral should reduce the moral damage that such a belief could create. In the long term, the central banks need to improve regulatory mechanisms for the financial markets in order to establish greater clarity and certainty within them. Thank you."@en1
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