European Central Bank President Jean-Claude Trichet said European governments should consider extending and broadening the region’s bailout fund to help fight the fiscal crisis.
“We’re calling for maximum flexibility and maximum capacity, quantitatively and qualitatively,” Trichet told reporters at an event in Frankfurt late yesterday, responding to a question whether the European Financial Stability Facility should be able to buy government bonds.
The European Central Bank (ECB) is putting pressure on governments to step up their response to the region’s debt crisis after market turmoil forced Ireland last month to become the second nation after Greece to seek external aid. ECB Vice President Vitor Constancio said on December 10 that an increase of the 440 billion-euro ($592 billion) rescue fund and more flexibility would be “helpful”.
“In some countries, there remain significant concerns about the sustainability of their own fiscal positions,” Trichet said. “Each country has to put its own house in order. This is no time for complacency in any respect.”
Governments across the region have embarked on programmes to bring deficits back in line with the European Union’s budget rules. The Irish government last week pledged spending cuts worth ¤6 billion in 2011 ranging from child benefits to government salaries to push down the country’s budget shortfall.
Restoring confidence
“I am sure that the programme is suited to bring about a sustainable stabilisation of the Irish economy and soothe tensions in financial markets that are associated with the Irish fiscal problems and the reorganisation of its banking sector,” Trichet said. “The programme will also contribute to restoring confidence and safeguarding financial stability in the euro area as a whole.”
While finance ministers agreed in October to toughen sanctions for breaches of European fiscal rules, they stopped short of more automatic penalties that the ECB and countries including Germany had demanded.
“These proposals in our view do not yet represent the quantum leap in economic governance that is needed to be fully commensurate with the monetary union we have created,” Trichet said. Sanctions should be applied in a “quasi-automatic” way and include fines and “possible limitations of voting rights for member states in persistence violation,” he said.
Luxembourg Prime Minister Jean-Claude Juncker and Italian Finance Minister Giulio Tremonti have called for the creation of euro bonds to help debt-burdened nations. The idea is “intellectually attractive,” EU Economic and Monetary Affairs Commissioner Olli Rehn said on December 6, and Greek Prime Minister George Papandreou said it’s time to “seriously discuss” it.
