EU's Almunia Sees `More to Come' in Financial Crisis

By Ben Sills

Sept. 18 (Bloomberg) -- European Union Commissioner for Economic and Monetary Affairs Joaquin Almunia said financial markets and the global economy will probably have to ride out further shocks before the financial crisis abates.

``There is more to come,'' Almunia said today in a speech in Madrid. ``This isn't the beginning of the end, it's just the end of the beginning.''

While ``nobody can rule out solvency problems in Europe given the systemic problems,'' Almunia said, ``central bankers are prepared.''

The yearlong credit squeeze has led in the past two weeks to the collapse of Lehman Brothers Holdings Inc. and the U.S. government takeovers of Fannie Mae, Freddie Mac and American International Group Inc. The euro-area economy contracted in the second quarter for the first time since monetary union began almost a decade ago, buffeted by the financial-market turmoil as well as record-setting gains in the euro and oil prices.

``The degree of optimism has reduced in past six months,'' Almunia said in an earlier speech today.

He also said the European Central Bank has a ``clear awareness'' of the dangers inflation poses for the economy. ``To forget that the fundamental duty is price stability is to throw stones on our own roof,'' Almunia said, adding that ``inflation spirals only create less growth and more unemployment.''

``Inflation in August started to slow in the euro region,'' he said. ``We can expect that this deceleration won't just continue but will become more evident.''

And this ``will help avoid errors of the past with second- round effects,'' Almunia said.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net