Although fiscal integration might be the only solution to the eurozone’s debt problems, it would have come too late to solve the current crisis, an economist said yesterday.
“The market was too optimistic about the debt crisis in Europe and believed that fiscal integration would help solve all the problems,” Cheng Cheng-mount (鄭貞茂), chief economist at Citigroup in Taipei, told a conference held by the Council for Economic Planning and Development yesterday.
However, even if the EU formed a fiscal confederation immediately, Cheng said integration would not have been able to solve the liquidity problem for countries experiencing debt problems in time.
Photo: CNA
Compared with fiscal integration, quantitative easing measures might have helped maintain healthy liquidity for these countries, but the European Central Bank (ECB) and Germany did not initiate such a move, Cheng said.
Despite the continuing negative impact from the eurozone’s debt crisis, Cheng said Taiwan’s economy was likely to bottom out in the first quarter of next year, in line with the latest forecast made by the Directorate-General of Budget, Accounting and Statistics last week.
“The momentum on domestic demand may slow, but it will not suddenly chill, for next year, with the service sector likely to maintain its growing pace,” Cheng said.
In addition, since the exposure of Taiwan’s banking and life insurance sectors to eurozone debt is relatively low, Cheng said building a firewall to strengthen Taiwan’s fundamentals would be an important thing for the government to do.
Lee Tien-cheng (李天成), chief executive officer of UBS AG in Taiwan, said the debt problem in the EU could lead the region’s overall economy into recession in the first or second quarter of next year.
Strong economies, such as Germany and the Netherlands, might experience flat to slow growth next year, with problematic economies facing recession as early as the fourth quarter this year, Lee added.
Nevertheless, Lee agreed that fiscal integration was the most likely option for the eurozone, although it would be a long and difficult process that would take more than two years to realize.
Michael Ding (丁予嘉), chairman and chief executive of Taipei-based brokerage Waterland Securities Co (國票證券), said the overall impact of the eurozone’s debt problem would be much less than that of the global financial crisis triggered by the troubled US bank Lehman Brothers in 2008.
“The government should boost investors’ confidence as soon as possible, as the recent market volatility in Taiwan has obviously been an overreaction,” Ding said.
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