Governments must restore faith in debt sustainability

(Reuters) – Governments must restore confidence in their ability to sustain their public debts, and a look at debt servicing costs in countries like Italy, Spain and Belgium shows this is not hard to achieve, ECB Executive Board member Peter Praet said.

Speaking at a conference in Milan on Friday, Praet said the burden of interest payments in those countries was “relatively acceptable.”

Praet said monetary policy was playing a key role in the euro zone debt crisis, by providing liquidity and limiting excessive deleveraging by banks. It should however avoid delaying necessary reforms.

“The idea is of smoothening the unavoidable process of deleveraging,” he said, adding this was needed to offset “the negative externalities of fire sales of assets.”

(Reporting By Valentina Za Silvia Aloisi)

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One Response to Governments must restore faith in debt sustainability

  1. And the governments need to hurry up otherwise the economy might start a downward spiral.