ECB chief: 'Europe needs budgetary federation'
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).
Dear EUobserver reader
Subscribe now for unrestricted access to EUobserver.
Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.
- Unlimited access on desktop and mobile
- All premium articles, analysis, commentary and investigations
- EUobserver archives
EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.
♡ We value your support.
If you already have an account click here to login.
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.