ECB’s Mersch Says Budget Rules Not Being Applied Strictly Enough

European Central Bank Executive Board member Yves Mersch said euro-area governments may be returning to lax fiscal policies and shouldn’t easily be able to delay budget-cutting measures.

“I fear that the unsound economic policies in some member states are once again not being opposed decisively enough,” Mersch said, according to the text of a speech in Hamburg today. “Deadlines for the correction of excessive budget deficits should, for instance, only be extended, by way of exception, in the event of exceedingly adverse circumstances. Extensions should not become the rule.”

Mersch is the second ECB board member today to take aim at a decision by the European Commission in May to allow countries including Spain and Italy two additional years to reach budget-consolidation targets in the face of enduring recession and record unemployment. Joerg Asmussen said earlier that a slowdown in moves toward consolidation risks renewing turmoil on government bond markets.

The regulatory framework for steering European economic policy, including a new arrangement for co-ordinating national budgets, isn’t being implemented consistently, Mersch said.

“The rules of the new European governance framework can only be effective if they are strictly applied,” he said in the speech. “Its success thus depends on the action taken by the European Commission and the Council of Ministers.”

Bank Supervision

Mersch also criticized a proposal by German Finance Minister Wolfgang Schaeuble for the introduction of a Europe-wide mechanism for winding down or restructuring failing banks, which would see national systems linked without transferring control to the European level. ECB officials have said they want such a system to be ready by the time the Frankfurt-based central bank takes over responsibility for supervising banks next year.

“A network of national authorities would fall short of what is necessary in this respect,” Mersch said. “A European resolution authority would ensure that decisions are taken in a timely and objective manner.”

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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