Governments must carry out a “deep revision” of economic policies so they’re fully adapted to the way monetary union works to overcome the euro region’s crisis, Bank of Spain Governor Miguel Angel Fernandez Ordonez said.
“It’s fundamental that economic authorities and agents fully assume the implications derived from sharing a single monetary union,” Ordonez said in a speech in Madrid today. “Solid public finances and flexibility of economic structures are crucial requirements in this respect.”
Spain is battling a recession that the International Monetary Fund expects will cause the economy to contract 1.7 percent this year. In the short term, countries can boost competitiveness only by adjusting prices and salaries and improving productivity, Ordonez said.
A “disproportionate part” of defending the stability of the euro area has fallen to the European Central Bank as governments seek to forge ways to stabilize markets, he said. ECB steps such as the measures to keep funding channels open for banks have helped give “precious time,” said Ordonez, an ECB council member.
After two years of trying, governments still have not been able to create “some mechanism of mutual assurance” that would play a role in stabilizing markets, he said.
European leaders have repeatedly reaffirmed their commitment to preserve the monetary union and it’s obvious that the process will require sharing sovereignty in areas such as fiscal policy and powers relating to banks, Ordonez said.
“The steps taken so far point in the right direction, although, to put it politely, there is a notable margin for improvement in relation to the pace at which these decisions are being taken,” he said. Current tensions in the region are due to excessive complacency over high levels of private debt that accumulated in some countries without sufficiently strict fiscal policies to counterbalance them, said Ordonez.
“We are all aware that we live in critical times for European integration,” he said. “We face a crisis of great reach.”
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