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Markets 'Overreact' to Europe's Problems: Almunia

Investors are "clearly overreacting" to the scale of the euro zone crisis, Joaquin Almunia, EU Commissioner for Competition Policy and vice president of the European Commission, said in a press conference in London late on Monday.

Moody's cut Greece's debt rating to junk, the second major ratings agency to do so after S&P's move at the end of April.

"The markets are clearly overreacting to the problems in Europe," Almunia, who was speaking before news of the Moody's cut came out, said.

The markets' reaction to the Moody's downgrade was not as drastic as that in April, when stocks plunged across the board.

Greece and other debt-stricken European countries have been obliged to impose deficit-reduction tactics that could result in years of economic decline and high unemployment.

Some economists believe these countries may choose to default on their debt rather than endure the pain.

One US economist told CNBChe was afraid Greece was in danger of defaulting as early as August, because it will not be able to meet requirements for getting another tranche from its EU/IMF loan.

"It's a very ambitious financial support package," Almunia said about the loan.

The initial crisis had been exacerbated during 2009 due to extremely bad management of finances within the country, he added.

Keep EU Bailout

The financial services industry is "extremely mobile and volatile," said Alumnia, who acknowledged that over-regulation can harm the competitiveness of major cities such as London. But "we know how harmful a lack of regulation has been," he added.

"Competition and industrial policy are going in the same direction," according to Alumnia, who believes that cartels are the worst obstacle to healthy European markets.

"We cannot tolerate, we need to fight cartels; the sophistication of some cartels is impressive," he said.

Some economists suggest that the only real options available to Greece, Spain, and the others to boost competitiveness are reducing wages and prices.

In order for Europe to become more competitive, it must rely on "a strong common market without barriers," according to Alumnia.

Alumnia said that "banks need to reduce their reliance on the public sector," but he is not convinced that the EU bailout provisions need to be phased out by December 2010. "The road to normality will not be easy. Without growth, we won't be able to succeed with an exit strategy," he said.

Contact Europe: Economy

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