EUROPEAN UNION finance ministers said on Friday they were optimistic that the crisis in the volatile and risky sub-prime mortgage lending market was under control.
Although accepting the risks for the European economy from massive mortgage payment defaults in the United States, they argued that a stock market crash similar to the one which happened in 1928 was highly improbable.
Fears and market uncertainty have been mounting in recent weeks in the United States after high risk borrowers began defaulting on their mortgage payments, refinancing packages and home loans following a series of interest rate hikes.
In front of the Rio Douro River in Porto, the 17 European Union finance ministers met to hammer out a strategy to deal with the crisis engulfing the world’s financial markets.
And the latest consumer confidence and retail indicators in the US are worse than expected, leading to fears that the financial cold suffered in that country could spread to Europe.
Both the European Central Bank and European Commission advised finance ministers meeting in Porto to calm the situation by sending out a clear message aimed at restoring consumer and market confidence.
The Portuguese finance minister said that economic growth in the European Union would “continue to increase” although he recognised “an enormous uncertainty with regards to the present market situation.”
The President of the European Central Bank, Jean-Claude Trichet, added that lessons needed to be learnt from the fact that credit rating agency fees were paid by the very financial institutions whose bonds they were assessing.
The bonds referred to are types of debt shares bought and sold on the strength of high risk lending such as that in the US sub-prime property market.
There has been criticism of the high ratings given to bundles of debt – including sub-prime mortgages – which are bought and sold on the markets and which originate from inferior credit rating homebuyers now defaulting.
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