Saturday

18th Jan 2020

ECB chief: 'Europe needs budgetary federation'

  • Jean-Claude Trichet: European Central Bank chief (Photo: Swedish Presidency)

European Central Bank chief Jean-Claude Trichet has called on European states to fuse together their budgetary processes in order to save the euro.

"We have got a monetary federation. We need quasi-budget federation as well," he told a meeting of the European Parliament's economic and monetary affairs committee on Tuesday (30 November).

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 30-day free trial.

... or join as a group

At the time of the launch of the single currency, many sceptical analysts warned that monetary union without fiscal union would inevitably result in centrifugal tendencies that would blow the euro apart, a position long rubbished by most EU leaders after the single currency's initial success.

However, in the wake of the sovereign debt crisis, imbalances within the eurozone are forcing a rethink of the situation.

Mr Trichet's words were some of the strongest comments yet by a European leader along these lines.

"We could achieve that if there is strong monitoring and supervision of what there is," he continued. "Because what exists doesn't correspond with the actual situation that we are facing. It is a situation where we need quasi-federation of the budget."

While such a move would represent a significant step change in European integration few believe possible for years or perhaps decades to come, Europe's top banker went on to say that markets and commentators do not quite realise the resolution of European leaders both within the eurozone and beyond to maintain the euro as a project.

"I would say, by the way, that pundits are tending to underestimate the determination of governments and the determination of the college that makes up the eurogroup, and indeed the 27-member state council."

In May, amid the Greece chapter in the ongoing crisis, European Council President Herman Van Rompuy had made similar comments: "We are clearly confronted with a tension within the system, the infamous dilemma of being a monetary union and not a full-fledged economic and political union. This tension has been there since the single currency was created. However, the general public was not really made aware of it."

The ECB leader made the comments amid further tumult in the markets on Tuesday, with the euro dropping below $1.30 for the first time since September, to $1.2982.

The zone's debt crisis took a turn for the worse on Tuesday, with Italy, Spain and Belgium all being hit with record bond spreads compared with German bonds.

The yield on Spanish 10-year bonds climbed above 5.5 percent, well above the 5.2 percent rate eurozone rescue cash costs Greece. At one point the spread with German borrowing costs climbed to a record 3.0 percentage points. Meanwhile Portugal's yield moved up to 7.072 percent from 7.0 percent.

Mr Trichet also hinted that the ECB could extend its purchase of government bonds, a controversial move within the ECB governing council, saying he could not discuss the issue "at this stage" but that further decisions on the programme would be taken by the board.

So far, the central bank has purchased €67 billion in government bonds.

He also insisted that the fundamentals of the eurozone are sound, despite the turbulence in the marketplace.

"I don't think that financial stability in the eurozone, given what I know, could really be called into question," he said, insisting that countries that are bailed out are "in a situation of solvency."

The comments came after Willem Buiter, Citigroup's chief economist described Portugal as "quietly insolvent" in a report.

Feature

Promises and doubts: Africa's free-trade adventure

The EU is hoping that a continent-wide free trade agreement in Africa will help lift millions out of poverty and help solve issues of security and migration. But its message of values and equal partnership do not resonate with everyone.

Interview

EU Africa envoy: Europe needs to look beyond migration

Europe's obsession with migration from Africa means it risks losing out the continent's potential when it comes to trade, says the EU's ambassador to the African Union, Ranier Sabatucci. "Africa is a growing continent, it is the future," he says.

EU agrees 2020 budget deal

EU governments and the parliament agreed in marathon talks ino next year's budget - which will boost spending on climate, border protection, and the European satellite system. It will also be a benchmark if there is no long-term budget deal.

EU and China agree to defend 'gastronomic jewels'

Manchego cheese, Panjin rice and Polish vodka will all be protected under a new EU-China agreeement. But the two trading giants continue to struggle over other trade-related deals.

News in Brief

  1. 'No objection in principle' on Huawei cooperation, EU says
  2. French aircraft carrier goes to Middle East amid tensions
  3. EU suggests temporary ban on facial recognition
  4. EU industry cries foul on Chinese restrictions
  5. 'Devil in detail', EU warns on US-China trade deal
  6. Trump threatened EU-tariffs over Iran, Germany confirms
  7. EU trade commissioner warns UK of 'brinkmanship'
  8. Germany strikes coal phase-out deal

Feature

Promises and doubts: Africa's free-trade adventure

The EU is hoping that a continent-wide free trade agreement in Africa will help lift millions out of poverty and help solve issues of security and migration. But its message of values and equal partnership do not resonate with everyone.

Opinion

Why von der Leyen must put rights at core of business

Ursula von der Leyen's in-tray must include those European executives on trial for systematic workplace harassment, the break-up of European slavery rings, and allegations of European companies' abuse in palm oil, including child labour, land grabs, and deforestation.

Stakeholders' Highlights

  1. Nordic Council of Ministers40 years of experience have proven its point: Sustainable financing actually works
  2. Nordic Council of MinistersNordic and Baltic ministers paving the way for 5G in the region
  3. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms
  4. Nordic Council of MinistersNordic Climate Action Weeks in December
  5. UNESDAUNESDA welcomes Nicholas Hodac as new Director General
  6. Nordic Council of MinistersBrussels welcomes Nordic culture

Stakeholders' Highlights

  1. UNESDAUNESDA appoints Nicholas Hodac as Director General
  2. UNESDASoft drinks industry co-signs Circular Plastics Alliance Declaration
  3. FEANIEngineers Europe Advisory Group: Building the engineers of the future
  4. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  5. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  6. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues

Join EUobserver

Support quality EU news

Join us