ECB Head Urges European Fiscal FederationBRUSSELS—European Central Bank President Jean-Claude Trichet on Monday called for a big increase in the powers of the European Commission to restrict the ability of member states to destabilize the union.
Mr. Trichet told the European Parliament's economic and monetary-affairs committee that he was calling for "the equivalent of a fiscal federation" that would substantially broaden the powers of the commission and member states to correct harmful developments in each country's budget position and overall competitiveness.
However, he acknowledged the impossibility of transferring full budgetary responsibility to any centralized institution, and repeated that the ECB is opposed to any system that open-endedly transfers liabilities from one state to another through the issuance of bonds under a "joint and several" guarantee.
Mr. Trichet's comments, delivered in his routine quarterly testimony to the European Parliament, are the ECB's contribution to fierce and divisive debate over how to reform the governance of the euro area in order to avoid future debt crises such as Greece's.
The ECB is trying to balance the interests of Germany, which has emphasized the need for fiscal discipline and sanctions on deficit sinners, and much of the euro area's southern and western periphery, which is aggrieved at what it sees as German reluctance to stimulate national demand for their goods and services.
Mr. Trichet fleshed out the call for a "quantum leap" in governance of the euro zone that he has been making since markets started to fear for the long-term ability of member states such as Greece and Spain to service their debts in future. So far, countries that share the euro submit to a common monetary policy but manage their own fiscal affairs.
He said an independent agency, preferably to be housed within the European Commission, should have the powers to hand down a broad range of sanctions on countries whose budgetary and macroeconomic policies would lead to a sharp loss of competitiveness, whether or not those policies actually violated existing guidelines on excessive debt and deficits.
"Sanctions need to be applied earlier and must be broader in scope," Mr. Trichet said, noting that the power of sanction could extend to suspending member states' voting rights in financial affairs. However, he made no direct reference to the possibility of denying members access to the EU's structural and regional funds, as some have mooted.
"The commission should have greater responsibility by making proposals which can only be modified with unanimity in the council rather than mere recommendations under the stability and growth pact," Mr. Trichet said.
He said that the EU should first try to implement these reforms using "secondary legislation," that is, without resorting to a wholesale renegotiation of the EU treaty. Most EU governments are resistant to the idea of yet another round of treaty negotiations so soon after the contentious ratification process of the Lisbon Treaty.
Mr. Trichet's comments come as the sharp volatility in euro-zone financial markets has appeared to ease somewhat. He said he saw a "progressive return to a normal functioning of the money market," after the turmoil in early May that forced it to start buying the bonds of some euro-zone governments on the open market. He repeated his pledge to withdraw "euro for euro" all the money injected through the so-called Securities Market Program, thus ensuring that it didn't lead to inflation.
He stressed that the ECB isn't embarking on a program of "quantitative easing" aimed at preventing a contraction of the money supply, and repeated that both this and all the other "nonstandard" policy measures used by the ECB over the past two years will be temporary.
However, he declined to say when he thought it will be possible to stop the buying of government bonds, a practice that has drawn heavy criticism from German officials, including those on the ECB's governing council.
In response to a question unrelated to the governance of the euro zone, Mr. Trichet said he welcomed the decision of the Chinese government to restore more flexibility to its currency regime. He said the decision "goes in the direction of more stability" and would benefit both China and its trading partners.
In response to another question, Mr. Trichet also acknowledged that the new framework for capital and liquidity in the banking sector, currently under development, "must not harm the economy" by making it more difficult for banks to lend. At the same time, however, he repeated his criticism of banks who he said had failed to take on appreciate how much risk the taxpayer had assumed in the bailouts that followed the 2008 financial crisis.
Enviado: 24/6/2010 6:07
