ECB wants ‘quantum leap’ in EU debt management

trichet05.jpg

The president of the European Central Bank (ECB), Jean-Claude Trichet, yesterday (21 June) called for no holds barred reform of the EU's fiscal and macro-economic policy, with deeper and more detailed surveillance of economies that are out of step with the EU's debt targets.

At a hearing in the European Parliament, Trichet called for a quantum leap to bring about a more effective structure for fiscal and macro-economic surveillance and adjustment, and urged MEPs to continue making bold proposals to rein in deviant economies.

"The ECB believes that a true quantum leap is needed in the framework for surveillance and adjustment of fiscal policies, as well as broader macro-economic policies concerned with Europe's competitiveness," Trichet told MEPs

He called for more stringent implementation of the EU's rules and procedures with sanctions that were both fast and quasi-automatic.

For countries with waning competitiveness in wages and costs, surveillance should be deeper and more detailed, he added.

"More ad-hoc reporting and dedicated country missions, policy recommendations, compliance requirements, public peer pressure and gradual financial steps to encourage compliance could all be part of that process," Trichet continued.

Though he welcomed EU leaders' commitments to greater fiscal surveillance at a recent summit on 17 June, he did not hide his eagerness to go further in giving more power over fiscal policy to Brussels.

According to Trichet, the European Commission should assume greater responsibility by making proposals, rather than "mere recommendations," which can only be modified by a unanimous vote from EU leaders.

The ECB president was referring to what he termed a "disrespect" some countries had for the EU's Stability and Growth Pact, which sets out the debt and deficit levels each member state of the 27-member bloc should maintain.

Spanish centre-right MEP José Manuel García-Margallo y Marfil put Trichet on the spot to define the terms 'economic governance', two words that have recently taken centre-stage in the EU's economic policymaking.

"With a single currency and in the absence of a federalist union, the euro zone needs the equivalent of a strong framework," Trichet said, calling for the Stability and Growth Pact to be reinforced by member states.

Trichet also endorsed a change to the EU's Lisbon Treaty to suspend voting rights of member states, an issue that has divided policymakers and some EU leaders, who fear a repeat of problems surrounding the ratification of the Lisbon Treaty in 2009.

Trichet's appeal for 'more Brussels' in fiscal surveillance and adjustment certainly goes further than conclusions drawn at last week's EU summit on economic governance.

Though, EU leaders pushed during the meeting for stricter and more effective sanctions against debt-laden member states, they agreed to place more emphasis on "levels and evolutions of debt and overall sustainability".

That is, a country will be considered to be in breach of the Stability and Growth Pact if its debt does not show a downward trend (EURACTIV 18/06/10)

A legislative proposal is expected to be tabled by the European Commission on 30 June.

French liberal MEP Sylvie Goulard (ALDE) questioned the idea of creating an independent fiscal agency that would be in charge of vetting member states' budgets, arguing that this would undermine the European Commission's powers.

German MEP Markus Ferber (European People's Party) suggested it should be the ECB itself that assesses member states' policies, considering that the Commission may be too closely linked to governments.

Other MEPs suggested that the ECB itself should enter the economic governance arena. Greek leftist MEP Nikolaos Chountis (GUE/NGL) proposed that a change in the role and functions of the ECB should be part of the "quantum leap".

The Stability and Growth Pact, which sets common rules for the euro, takes into account public debt to evaluate the financial stability of a member state or a country wishing to enter the single currency.

Among other criteria, the Pact limits public deficits to 3% of GDP and national debt to a maximum of 60% of GDP, or close to that value.

But while public deficits constantly focus the attention of the EU institutions, the debt limit has regularly been overlooked.

Member states that go beyond the 3% limit in a specific year are subject to official rebukes from the European Commission. This does not involve fines, but has an impact on markets as well as national political debates. No such measures have thus far been applied for breaching debt parameters.

  • 30 June: European Commission to table legislative proposal on new public debt indicators and sanctions for countries breaking 60% debt-to-GDP limit.

 

Subscribe to our newsletters

Subscribe
Contribute