Europe needs to strengthen the foundations of the euro and “remove all doubts as to its sustainability,” the European Union’s economy chief said on Tuesday.

“We cannot expect the euro area to transform itself into a full fiscal union overnight,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a speech on Tuesday at Harvard University in Cambridge, Massachusetts.

“Far-reaching decisions need to be allowed time to be appropriately reflected upon, debated and agreed in a way that is fully legitimate, especially considering the complex democratic construction that is the European Union,” Rehn said.

Europe’s economic outlook is weakening as the region’s policy makers strive to end the three-year debt crisis. Euro- area surveys on September 20 showed that services and manufacturing output fell to a 39-month low in September, adding to evidence the economy is heading for a recession. Still, U.S Treasury Secretary Timothy F. Geithner said Tuesday that Europe is in a “much better position” than it was three to nine months ago.

Rehn said the European Union is “here to stay,” and a fiscal union would require strong democratic institutions to ensure the necessary checks and balances. He acknowledged that the “macroeconomic outlook is still bleak.”

To ensure that the European Central Bank’s bond-buying interventions help reduce bond yields in a lasting manner, Rehn said they would be “available only to countries that pursue sound budgetary policies and address macroeconomic imbalances,” based on the EU’s country-specific recommendations adopted in July. Rehn said such conditionality requires “specific policy objectives and a clear timeline.”

Rehn, answering audience questions after the speech, said he does not envisage “further debt restructuring” for Greece.

“But I would not want to dwell too deep on the Greek program now because we have our mission partly on the ground, partly now at headquarters and soon returning back to Athens to continue the talks,” Rehn said. “They are at a very sensitive moment.”

Greece has received 240 billion euros in aid pledges in a pair of bailout packages. Investors took losses in a debt exchange this year, losing 53.5 percent of the face value of their holdings and reducing the country’s debt by about 100 billion euros.

[Bloomberg]