Political consensus on European crisis seems challenging: FM

"Given the depth of the crisis in Europe and heterogeneity of factors that have led to it, achieving a political consensus on its resolution seems particularly challenging," he said in his address to Peter G Peterson Institute for International Economics a Washington-based think tank -- which had organised the event in association with the Confederation of Indian Industry (CII).

While measures, including announcement by the European Central Bank to extend loans to banks up to three years have calmed markets for the time being, a decisive resolution to euro zone crisis will require greater coordination and policy consensus and has to be the immediate priority, he said.

Referring to the European crisis, Mukherjee said the world economy is presently passing through turbulent times.

"The lingering after effects of the global financial crisis have of late become more pronounced. Over the past months, deep and widespread economic concerns with a complex mix of real and financial problems have surfaced in Europe," he said.

"The incremental nature of the sovereign debt crisis in the Euro zone, with events including sovereign and bank rating downgrades and risk on-off strategies of international investors have led to significant rise in overall macroeconomic risks that threaten the stability of the global economy," he said.

Mukherjee pointed out that high fiscal deficit and unsustainable public debt levels in advanced countries continue to limit the ability of policy makers to respond. "Growth would continue to slow because the emphasis is on fiscal correction and lowering public debt," he said.

There are other factors that seem to be dampening the underlying growth momentum in the euro area. They include moderate global demand growth, weak business and consumer confidence in the euro area as well as the process of balance sheet adjustment in the financial and non-financial sectors, Mukherjee said.