EU’s Donohoe: Europe does not risk fresh sovereign debt crisis

Paschal Donohoe, chief of the pan-eurozone group of finance ministers, said in an interview with the Financial Times (FT) on Monday, Eurozone is not at risk of a sovereign debt crisis seen a decade ago, as the bloc’s economies are in ‘completely different’ shape at present.

Key quotes

The current circumstances were “completely different from the kind of crisis environment we were in” when the bloc was gripped by a spiraling sovereign debt sell-off in the early 2010s.

The euro area now had “stronger architecture” and “deeper foundations for our common currency.”

“We are all confident about our ability to navigate through the changes that are taking place.”

“The starting positions for member states in terms of their debt and deficit levels is now very, very different to where we were before Covid hit us.”

“We will continue to need to have plans that reduce borrowing in a careful way. The plans to do it will have to be credible. They will have to reflect the fact that we are in an inflationary environment.”

The FT reports that Donohoe’s remarks come as ECB president Christine Lagarde prepares to face questions from MEPs at the European Parliament on Monday over its recent contrasting messages.

Market reaction

EUR/USD is holding the renewed upside above 1.0500, adding 0.28% on the day. The optimistic comments from Donohoe will only aid the rebound in the shared currency against the US dollar.