Governments Should Pressure Banks to Lend: Juncker

It is hard to tell whether the economic crisis has worsened, but governments should pressure banks into lending more to customers, Eurogroup Chairman Jean-Claude Juncker said in remarks published on Monday.

It would take a few months for the effects of the European Central Bank's record interest-rate cut last month to be felt, and both 2009 and 2010 will be difficult years, Juncker said in an interview with French newspaper Le Figaro.

He hoped, however, that the situation would return to normal in 2011 and 2012. Asked if the economic situation had worsened, Juncker said: "It is hard to say. We are swimming in the fog. I do not have the impression that the crisis has worsened but I am not certain either that the worst is behind us."

While banks were telling him there had been no reduction in their lending, companies were saying the opposite. "It is therefore logical to demand more commitments (to lend) from financial establishments. Goverments must be able to put pressure on them," Juncker said.

Asked if measures or penalties targeting financial firms should be passed, Juncker said he did not believe it was necessary at this point to put in place "normative instruments".

Sharon Lorimer

"But if banks were to persist in their attitude, it cannot be ruled out that states would think about forms of legal pressure," he said, without elaborating on the idea.

Juncker said Germany, which is putting together a second stimulus plan after a first package that the government said was worth 31 billion euros ($41.52 billion), had realised that its initial moves were insufficient, but he said stimulus measures should not come at the expense of budgetary consolidation.

"The Germans themselves saw that their initial plan was insufficient. Germany is the locomotive of Europe. It is therefore essential that it develop an ambitious growth package both for itself and for its partners," Juncker said.

"At the same time, stimulus should not come at the expense of budgetary consolidation," he said, adding that any prospect of budget slippage would hurt consumer confidence.

Juncker added that the growing U.S. budget deficit could exacerbate economic imbalances. "The U.S. budget deficit should reach 8 percent in 2009, compared with 3 percent in 2008. There is a risk that global imbalances will worsen, particularly in exchange rates ... We must remain vigilant because a second crisis could emerge."

Oil prices were another source of concern and had seen "extreme" volatility, he said. Oil prices have fallen to less than a third of this summer's record high of over $147 a barrel.

"It is in our interest, on the European side, to deepen our discussions with oil producer countries," Juncker said. "For the moment we prefer to ignore this problem because it is true that the fall in prices benefits the consumer. There is there an essential element of fragility which we must take into account," he added.

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