ECB Wants Sanctions on Over-SpendingBy
The European Central Bank has waded into the ongoing debate on toughening up the EU's budgetary rules, saying a "quantum leap" is needed to ensure member state compliance in the future.
Speaking before MEPs in Brussels on Monday evening (21 June), the bank's president, Jean-Claude Trichet, said sanctions for overspending states need to become more automatic, and suggested an independent body be set to up monitor the process.
The budgetary issue has jumped to the top of the European agenda after markets took fright at the growing debt and deficit levels in a number of member states such as Greece and Spain, causing borrowing costs to jump and forcing Athens to seek an EU-IMF bail-out.
"The benefits and protection that are derived from membership of monetary union bring with them responsibilities and obligations," said Mr. Trichet, a reference to the low borrowing costs eurozone states have enjoyed over the last 11 years, but also the repeated breaches of the area's maximum debt and deficit thresholds.
Current offenders receive a report from the European Commission with budgetary recommendations, with states that fail to adhere to these policy guidelines being theoretically liable to receive punishing fines, although such penalties have never been handed out.
In future, the triggering of sanctions should be "quasi-automatic," said Mr. Trichet, adding that they needed to be wider in scope to include "more stringent reporting requirements or even a limitation or suspension of voting rights [in the EU Council]."
"The [European] Commission should have greater responsibility by making proposals, which can only be modified by unanimity in the council [representing member states]."
Brandishing the bloc's past failures as a "disgrace," the Frenchman suggested an independent agency, preferably to be housed within the commission, be given the broad powers necessary to hand out the new sanctions.
The body would also be in charge of monitoring member state competitiveness levels, another area that has been drawn into sharp relief by Europe's financial crisis, recession and subsequent fiscal crisis.
While successive governments in Europe's largest exporter, Germany, have worked hard to keep salaries down and thus maintain a competitive edge over rivals, Brussels has said major structural reforms are badly needed in a number of the bloc's southern member states.
"Conscious management of wages and costs in order to maintain a healthy position for the economy within a competitive environment—this should be the core focus of such broader macroeconomic surveillance," said Mr. Trichet.
A taskforce under European Council President Herman Van Rompuy is currently working to agree proposals in the these areas. Germany feels that a revision of the EU Treaty will be necessary to bring about meaningful changes, a laborious process that other member states are keen to avoid.
The central bank chief tended to side with the latter group, saying new rules should be brought in by maximising the possibilities allowed under secondary legislation.
Mr. Trichet also took the opportunity in front of the parliament's economic committee to defend the bank's decision on 10 May to commence purchases of government bonds on the secondary market, a process that some, including German members of ECB's governing board, have criticised as inflation threatening.
"Our fellow citizens know that they can count on us to deliver price stability," he said, outlining how €51 billion of the extra liquidity injected into the financial system via the bond purchases has already been withdrawn.
"Inflation expectations for the coming years are in line with our targets," Mr. Trichet added, insisting that the Frankfurt-based bank had not embarked on a process of quantitative easing as other central banks around the globe have done.
On the separate issue of bank stress tests, Mr. Trichet said the upcoming results would show many of Europe's firms to be in good condition, helping to dispel market doubts.
"In a number of cases the results will call for appropriate solutions and then they need to be there," he added.
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