Eurozone needs fiscal union: ECB chief

31st May 2010, Comments 0 comments

European Central Bank president Jean-Claude Trichet called in an interview on Monday for a eurozone fiscal union to monitor public finances, saying France, Germany and Italy had set "very bad" examples.

Trichet told French daily Le Monde that supervision of fiscal policies, development of competitive economies and structural reforms in the 16-nation eurozone needed to be "radically improved."

He said: "We are a monetary union. We now need the equivalent of a fiscal union in terms of monitoring and supervising the implementation of policies on public finances."

The ECB chief added that close mutual surveillance as foreseen in the European Union's Stability and Growth Pact "has been terribly neglected."

That, he said, was in part owing to "severe criticism, including from large countries such as Germany, France and Italy."

He said that "they set a very bad example" also in terms of managing their own fiscal policy.

The European Commission has proposed that eurozone countries submit their budgets for peer review before presenting them for approval by national parliaments, provoking resistance which Trichet said he did not understand.

"I support the commission's proposal, which I consider to be perfectly aligned with the goal of improving governance in the euro area," he said.

Trichet also supported plans by European governments to cut spending and raise tax revenues which have been criticised by some economists as potentially harmful to economic growth.

"What you call austerity plans I call plans for a progressive return to a sound fiscal situation," the ECB chief said.

"In any case these wise policies are favourable to growth since they increase the confidence of households, businesses and investors."

© 2010 AFP

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