IHS chief calls stabilisation package ‘a reasonable solution’

Bernhard Felderer, who heads the Vienna economic think tank the Institute of Higher Studies (IHS), has said that last night’s Euro-zone stability package was “a reasonable solution” that had already begun to stem speculation against the Euro.Speaking today (Mon) Felderer said: “They (finance ministers) did not have many other options,” adding that “it is not so easy to break the Euro.”Felderer said that a Euro-dollar exchange rate of 1.30 was still far above what it should be based on purchasing-power parity and that a rate of 1.20 would be good for the European Union on economic grounds, especially in the export sector.The key development, he added, would be stabilisation of Euro-zone states with large debts to prevent the spread of infection from Greece to Spain and Portugal. Italy, he claimed, had its deficit fully under control.The European Central Bank’s (ECB) willingness to purchase heavily-indebted countries’ bonds would enable them to refinance their debt, he said, adding that the danger was that the ECB was preparing to take measures that would reduce liquidity.The stability package, he added, had demonstrated that Europe would not allow speculators “to break it.” He said he doubted that it would be necessary to disburse the 750 billion Euros provided for in the package but noted it had been necessary to hold them in reserve since financial markets had been marked recently by so much hysteria and speculation.Felderer also remarked that he doubted that more regulation would reduce market speculation and that it would be necessary to make devaluation measures stronger in the presence of “worldwide vagabond capital.”