Trichet calls for eurozone finance ministry

AP News
Posted: Jun 02, 2011 11:07 AM
Trichet calls for eurozone finance ministry

The head of the European Central Bank pressed for tighter EU control over spending by national governments to strengthen the currency union against future crises and even proposed creating a single finance ministry for the 17-nation bloc.

Jean-Claude Trichet proposed allowing European Union officials to make spending decisions for financially troubled countries if _ like Greece _ they have already been bailed out and are failing to make progress on reducing their deficits.

"One way this could be imagined is for European authorities to have the right to veto some national economic policy decisions," Trichet said. "The remit could include in particular major fiscal spending items and elements essential for the country's competitiveness."

With the debt crisis testing the eurozone's integrity, Trichet suggested the only way forward was closer union of economic policies between the euro countries. He even suggested that the eurozone could in years to come have its own supra-national finance ministry.

Trichet, who leaves office when his term expires Oct. 31, made the remarks Thursday in Aachen, Germany, as he accepted the city's International Charlemagne Prize recognizing service on behalf of European unification.

Trichet's proposals looked to the longer-term future of Europe, since they would require a time-consuming change in the EU's basic treaty. But his remarks were a timely reference to the situation in Greece.

Greece took a euro110 billion ($158 billion) bailout last year but has struggled to achieve its revenue and deficit targets. European Union and Greek officials are discussing the terms of a potential second bailout to keep the country from defaulting on its debts.

Ireland and Portugal have also needed bailouts from the eurozone's bailout fund and the International Monetary Fund.

Trichet has said that the only way to protect the common currency from overspending by individual governments is to make a "quantum leap" by strengthening the rules against exceeding debt and deficit limits. An earlier set of rules proved to be ineffective, as governments ignored them.

The European Union is working on a proposed new set of rules, but Trichet says they're not strong enough to keep individual countries bad habits from getting the others in trouble, and has urged the European Parliament to toughen the proposal.

"Looking at the euro area today, we see clearly that countries that abide by the rules of the single currency can thrive and prosper," he said. "But we also see the opposite. Countries that have not lived up to the letter or the spirit of the rules have experienced difficulties. Via contagion, these difficulties have affected other countries" in the monetary union.

"Strengthening the rules to prevent unsound policies is therefore an urgent priority."

Greece got into trouble through years of spending too much, with bond market lenders assuming that its euro membership meant it was a good risk. When it ran into financial trouble, however, Greece suddenly found it could no longer borrow on capital markets.

In the longer term, Trichet said, Europe should consider creating a eurozone finance ministry that would stand above national ministries and police them.

It would not have a large budget funded by tax revenue, as the national ministries do, but would instead monitor countries' economic performance and keep an eye out for budgets that are going off track or economies that are losing competitiveness. It would also take over eurozone-wide financial regulation.

"In this Union of tomorrow, or of the day after tomorrow, would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the Union?" Trichet said.