European Central Bank President Jean-Claude Trichet called for “more ambitious” rules to force member-countries to maintain fiscal discipline and punish those who don’t.
“For the euro area, more ambitious reforms are needed to ensure the smooth functioning of monetary union,” Trichet said in a speech at the World Policy Conference in Marrakech. There must be “greater automaticity, accelerated timelines and reduced room for discretion in procedures.”
European Union finance ministers meet in Luxembourg on October 18 to consider European Commission proposals to fix budget management and avoid runaway deficits that led to Greece’s near- default this year. France is balking at calls for the faster imposition of sanctions on deficit-ridden governments, putting it at odds with Germany and the ECB over how to prevent a repeat of the debt crisis.
In a replay of debates over European economic management in the 1990s, France insisted on leaving sanctions in the hands of elected national officials, while Germany and the ECB want to make them virtually automatic.
“All deadlines under the excessive deficit procedure should be significantly reduced: sanctions should be applied quasi- automatically on the basis of clearly defined criteria, without scope for discretion for exceptional circumstances or waivers,” Trichet said. “The debt reduction should in some cases be more ambitious than proposed by the commission,” Trichet said.
No punishment
No country has been fined in the euro’s almost 12-year history for overstepping the deficit limit of 3 per cent of gross domestic product. Greece, the trigger for this year’s debt shock, has violated the threshold during its entire membership and had a shortfall of 13.6 per cent of GDP last year.
Governance would also be helped by “sanctions at earlier stages in the macroeconomic surveillance framework, greater independence and quality controls in underlying analysis and stronger powers in case of questions over statistics,” Trichet said.
Trichet said that he’s “completely against” raising the ECB’s 2 per cent inflation goal, saying such a move who would have “disastrous consequences.” The remarks came in response to statements by Federal Reserve Chairman Ben Bernanke that US inflation remains too low. The remarks sparked speculation that Bernanke may consider instituting an inflation target in an effort to boost prices and stave off deflation.
‘Modest’ recovery
Europe’s economic recovery remains “modest” and Trichet said he was “prudent” about the strength of the rebound. The global financial crisis that led to Europe’s worst recession in 60 years shows the need for both structural reform in Europe to make economies more efficient and a global effort to come up with common financial regulation, he said.
“We insist on the necessity of continuing structural reforms that permit Europe to raise its growth potential,” Trichet said. “The growth potential is too low. There is resistance. We are asking all countries to be as active as possible because, however difficult they are in the short term, the reforms are what give the growth” that is desired in the long term.
