Klaus Regling, CEO of the European Financial Stability Facility (EFSF), today said that the situation in Europe is not as bad as is generally believed.

He was delivering the first IISS-Oberoi lecture. Europe, he pointed out, has mobilised almost $1.5 trillion, of which two-thirds is available for disbursement.

European economies have been putting their houses in order, he said on the back of gradual fiscal consolidation and healthy export growth.

But the adjustment process must continue apace and a contraction in economic activity is inevitable, he said.

Structural reform and not devaluation is the answer to Europe’s problems. If this is done, Europe will return to long-term sustainable growth.

A necessary condition for this, however, is the achieving of a European Fiscal Compact which is in its final stage. This compact will basically abridge national fiscal freedom.

Asked which was the most difficult problem country, Regling said it was Greece, which had a solvency problem compared to the others which had a liquidity problem.

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