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Barroso: EU needs no economic 'lessons'

  |   June 19, 2012 at 4:00 AM
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LOS CABOS, Mexico, June 19 (UPI) -- Europe doesn't need economic "lessons" from North America, where the financial crisis started, a top European official said, as Spain edged toward insolvency.

"Frankly, we are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy because the European Union has a model that we may be very proud of," European Commission President Jose Manuel Barroso said at the summit of the Group of 20 leading industrial and developing economies in Los Cabos, Mexico.

He had just been asked by a Canadian journalist, "Why should North Americans risk their assets to help Europe?"

"By the way, this crisis was not originated in Europe," said Barroso, whose commission is the European Union's executive body.

"Seeing as you mention North America, this crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices, from some sectors of the financial market," he said.

The crisis is generally understood to have been triggered by a complex interplay of valuation and liquidity problems in the U.S. banking system in 2008 after the U.S. housing bubble burst, causing the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.

Barroso has argued that all G20 countries should contribute more to the International Monetary Fund to help Europe.

The United States and Canada are the only G20 members stating they will not contribute additional funds to the IMF this week as part of a plan to raise more than $430 billion in new commitments.

Barroso spoke as G20 fears rose that Spain would soon become the fourth eurozone country seeking a full-scale international bailout, after the yield on the Spanish 10-year bond reached 7.139 percent Monday, a eurozone high.

A yield above 7 percent is considered unsustainable, and has already prompted bailouts of Greece, Ireland and Spanish neighbor Portugal.

Spain's sovereign debt is on the cusp of being excluded from the markets, the Spanish newspaper El Pais said Tuesday.

Barroso told reporters the terms of Spain's already agreed-to banking rescue still needed to be negotiated, and he acknowledged growing market fears that Europe's banking and fiscal crises were becoming increasingly intertwined.

He said the link between highly indebted governments and insolvent banks needed to be broken, and said Spain could be a starting point, with banks getting bailed out without increasing Spain's sovereign debt.

"Certainly the European Commission ... will be in favor of a system that avoids, as far as possible, any kind of contamination between debt -- financial debt and sovereign debt -- because we believe that this is one of the issues that can have a negative impact in terms of market reaction," he said, referring to financial-market routs that work against presumed bailout benefits.

The crisis is to be the focus of discussions among eurozone finance ministers meeting in Luxembourg Thursday and Friday. It is also widely expected to be the chief topic when the leaders of all 27 EU countries meet for a formal summit in Brussels June 28-29.

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