Sunday

14th Aug 2022

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

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe 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.

Almost two-thirds of Europe in danger of drought

Data released by the European Drought Observatory show 60 percent of Europe and the United Kingdom is currently in a state of drought, with farming, homes and industry being affected. Drought conditions have also led to an increase in wildfires.

Droughts prompt calls to cut water use amid harvest fears

With the prolonged lack of rain and high temperatures, fears have emerged over water shortages and droughts decreasing crop yields — prompting calls to use less water and reuse urban wastewater for agricultural irrigation.

EU 'must tax pesticides' to cut use, expert warns

The European Commission put forward a new proposal to reduce pesticides in mid-June. But experts warn that it is based on weak rules, and that European agriculture is stuck in a "permanent pesticide-dependence."

Brazil pitches itself as answer to Ukraine war food shortages

Brazilian president Jair Bolsonaro is pitching his Latin American country as the answer to the world food crisis following the war in Ukraine. The traditional wheat importer has now exported three million tonnes of the grain so far in 2022.

Opinion

Exploiting the Ukraine crisis for Big Business

From food policy to climate change, corporate lobbyists are exploiting the Ukraine crisis to try to slash legislation that gets in the way of profit. But this is only making things worse.

News in Brief

  1. Germany to help nationals cope with energy price spike
  2. Germany wants pipeline from Portugal
  3. Ukraine urges US to sanction all Russian banks
  4. Spain evacuates 294 Afghans
  5. EU sanctions have 'limited' effect of Russian oil production
  6. Donors pledge €1.5bn to Ukraine's war effort
  7. Sweden overtakes France as EU's top power exporter
  8. Italy's far-right star in European charm offensive

Stakeholders' Highlights

  1. EFBWW – EFBH – FETBBConstruction workers can check wages and working conditions in 36 countries
  2. Nordic Council of MinistersNordic and Canadian ministers join forces to combat harmful content online
  3. European Centre for Press and Media FreedomEuropean Anti-SLAPP Conference 2022
  4. Nordic Council of MinistersNordic ministers write to EU about new food labelling
  5. Nordic Council of MinistersEmerging journalists from the Nordics and Canada report the facts of the climate crisis
  6. Council of the EUEU: new rules on corporate sustainability reporting

Latest News

  1. Defying Russian bombs, Ukraine football starts 2022 season
  2. Sweden to extradite man wanted by Turkey
  3. EU must beware Beijing's new charm offensive
  4. Forest fire near Bordeaux forces over 10,000 to flee
  5. Estonia and Latvia sever China club ties
  6. Russian coal embargo kicks in, as EU energy bills surge
  7. Only Western unity can stop Iran hostage-diplomacy
  8. Kosovo PM warns of renewed conflict with Serbia

Join EUobserver

Support quality EU news

Join us