ECB official gives cool reaction to eurozone reforms
European Central Bank chief economist Juergen Stark replied cautiously Wednesday to a European Union deal hailed as the eurozone's "biggest reform" ever, saying that remained to be seen.
An agreement unveiled Tuesday would make it easier to sanction EU states that blow their budgets and create a permanent, Greek-style safety net for those that cannot cope.
This "was celebrated as a great day for Europe," Stark noted on the sidelines of an ECB conference in Frankfurt.
But it "remains to be seen whether this will be a great day and whether in the end the strengthening of the fiscal rules, the strengthening of the Stability and Growth Pact and the new procedure on macro economic surveillance will really turn out to be a quantum leap," the ECB economist added.
ECB President Jean-Claude Trichet has urged European governments repeatedly to make a "quantum leap" in governance and budgetary responsibility to respect terms of the widely-flouted stability pact.
European Union President Herman Van Rompuy has said the latest decisions amounted to the eurozone's "biggest reform" since its creation in 1999.
Von Vompuy spotlighted a new "early-warning system" to detect real estate bubbles such as those that provoked deep recessions in Spain and Ireland.
Deutsche Bank economist Gilles Moec said a compromise on fiscal rules that lead to the deal "can probably be interpreted as a victory of a 'soft approach' which does not necessarily improve Europe's credibility in finally complying with the goal of a balanced budgetary position."
Stark said: "No final decision has been taken yet" on the measures, which will be presented to the Council of the European Union next week.
In a separate address to the conference, Stark warned that public debt was on an upward trend around the world and urged governments to take action.
Japan's public debt would reach around 200 percent of gross domestic product this year, the economist said, more than three times the limit of 60 percent laid down by the EU in its stability pact.
"In the euro area on average we are around 85 percent, and the same is true for the United States," Stark said.
"This is an ongoing upward trend which is not sustainable and which has to be corrected sooner rather than later," he added.
The ECB is at odds with other central banks as it unwinds exceptional stimulus measures and urges governments to cut debt, because the US Federal Reserve and Bank of England are contemplating more monetary stimulus for their economies.
Meanwhile, ECB Vice President Vitor Constancio said it might be impossible to deal globally with the threat of failure of systemically important banks that operate in many different countries.
Constancio told central bank statisticians, regulators and analysts it "is perhaps a little bit too ambitious" to devise a system to reconcile claims from legal systems around the globe.
"There are not many ways of dealing with this 'too big to fail' issue," the ECB vice president said, suggesting instead that improved data and supervision ensure that banks are "too good to fail."
© 2010 AFP