European Central Bank Executive Board member Juergen Stark said euro-area nations need to take “bold steps” toward a fiscal union to complement the single currency.
“In one word, the crisis has clearly shown us that we need ‘more Europe’,” Stark said in a speech in Berlin today. “We need bold steps toward a fiscal union. We need to go beyond and create a financial union.”
Policy makers across the 17-country euro area are grappling with a crisis of confidence in states’ ability to pay their debts after nearly two years of turmoil on sovereign bond markets. Although the Frankfurt-based ECB sets a common monetary policy for the euro’s member states, each remains responsible for their own budget policies.
“The current sovereign debt crisis in Europe is proving to us that fiscal policy should be more grounded -- in a similar way to monetary policy -- within a rules-based framework with clear medium-term objectives,” Stark said. “All historical examples of well-functioning monetary unions have shown strong and innovative approaches to dealing with regional fiscal problems.”
Stark said that in addition to more centralized control of fiscal policies, there may be a need for greater integration of Europe’s regulatory framework, such as the creation of a single European financial supervisor.
“Further ambitious arrangements may be needed to enhance the robustness of our financial systems,” he said. “Not only stricter fiscal rules and the creation of a fiscal union are needed, but it has to be complemented with a financial union.”