June 17 (Bloomberg) -- European Central Bank Executive Board member Joerg Asmussen said giving countries such as Spain and Italy more time to repair their budgets risks reigniting turbulence on government bond markets.
“Without further structural reforms and prompt progress with budget consolidation, we could easily see renewed tensions in the markets for government bonds,” Asmussen said today in the text of a speech given in Magdeburg, Germany. “Pausing and relaxing is not a realistic option.”
Recession-hit countries won greater budget freedom in May as the European Commission eased up on austerity policies championed by Germany in the wake of the region’s sovereign debt crisis. Six straight quarters of economic contraction in the euro area and a youth unemployment rate of 24 percent had spurred countries including Spain and France to ask for two more years to reach their fiscal targets.
“In times of low growth the calls for more time and less reform pressure get louder,” Asmussen said in the text of the speech, adding that the debate in the European Union that had led to the relaxation “isn’t especially helpful.”
Asmussen pressured governments to agree to repair the balance sheets of banks that have existing bad loans. The Frankfurt-based ECB is preparing a review of balance sheets later this year and will take over responsibility for supervising as many as 150 European lenders directly next year.
“It is important to stress that the repair of legacy assets should be primarily taken over by the member states,” Asmussen said, adding that a euro-area resolution mechanism would ideally be operational by the time the ECB takes over supervision.
“This ambitious timetable is doable, if the resolution mechanism were to be established on the basis of EU secondary law.”
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