No signs of new EU debt crisis, but prudent fiscal policy is needed - Dombrovskis

No Signs of New EU Debt Crisis, but Prudent Fiscal Policy Needed

Current Euro Zone Debt Situation and Policy Recommendations

BANGKOK, Oct 14 (Reuters) - There are no signs of a new euro zone sovereign debt crisis, but governments need to be prudent as debt costs rise on higher sovereign and corporate borrowing and inflation expectations, European Economic Commissioner Valdis Dombrovskis said.

Bond Market Developments and Fiscal Concerns

Dombrovskis spoke to Reuters at the International Monetary Fund's meetings in Bangkok as the spread of French 10-year bonds over equivalent German paper hovers close to a record 140 basis points, driven by concerns over the country's high debt and deficit and uncertainty about whether a deficit-cutting budget will clear parliament. 

Comparison to Previous Debt Crisis

Asked if he saw the makings of a new European sovereign debt crisis after the 2010-2012 turbulence that almost destroyed the euro zone, Dombrovskis said: "No, but obviously we need to be prudent in terms of our fiscal policies."

Policy Advice from the EU and IMF

"It is advice which we are giving to EU member states, which is very consistent with the advice the IMF is giving to the broader international community."

French Budget and Fiscal Outlook

The 2027 French budget draft envisages a reduction of the deficit to 5.0% of GDP next year from 5.4% expected this year, but campaigning ahead of the April/May elections next year has thrown the passage of the bill in doubt.

Importance of Timely Budget Adoption

"France has presented an ambitious budget for 2027, and obviously now it's important that this budget is adopted in due time to provide a signal of clarity and stability about the fiscal outlook in France," Dombrovskis said.

Broader EU Debt Issues and Maturity Structure

He said other EU countries also had debt problems and noted the long average maturity of sovereign debt in Europe now gave governments time to act before the higher yields translated into much higher debt servicing costs.

(Reporting by Jan Strupczewski; Editing by John Mair)