ECB calls for bigger eurozone emergency fund

14th December 2010, Comments 0 comments

The European Central Bank (ECB) is pressing political leaders to boost the size of a fund created to preserve financial stability, two days ahead of a crucial European Union summit.

"We are calling for maximum flexibility, and I would say maximum capacity, quantitatively and qualitatively," for the European Financial Stability Facility (EFSF), bank chairman Jean-Claude Trichet told media in Frankfurt.

Trichet spoke late on Monday but his comments were delivered under embargo.

On Thursday and Friday, EU leaders are expected to approve a permanent eurozone crisis fund that Economics Affairs Commissioner Olli Rehn said will provide a "systemic" response to the eurozone debt and deficit crisis.

Bond markets have targetted several weaker eurozone countries including Ireland and Portugal in the fallout from the Greek debt crisis in May.

The ECB has bought government bonds as borrowing rates for those members soared, marking another stage in the crisis, but raising questions as to how far it could go with this tactic.

Trichet said that "crises of that amplitude call for all of us in Europe to reflect intensively on what should be done" and urged EU leaders to do more than they have offered to so far.

"We are not completely satisfied with the proposals put forward by the (EU) Commission and the European Council Task Force that should aim at strengthening the system of economic governance in Europe," an ECB statement said.

In particular, deadlines for action by governments running excessive public deficits should be shortened and "sanctions should be applied in a way that is quasi-automatic and based on clearly defined criteria," it added.

EU politicians that are supposed to keep an eye on each others' finances have considerable say in such matters but have in the past been reticent to approve painful sanctions on each other.

"Effective monitoring required adherence by members to the policy framework, it requires peer pressure and consequences to deal with deviant behaviour, and it requires reliable statistics," the statement said.

It has emerged that Greece, for example, joined the eurozone with bogus figures, and growth data since 2004 are still not considered final by the EU's Eurostat statistics service.

Trichet has called several times for governments to make a "quantum leap" in governance in response to the crisis and said he believed they would rise to the challenge owing to pressure being brought by emerging economies.

"The changes I see in the rest of the world over the last 20 years are in my opinion confirming that the deepening of European unity is more justfied than ever," he said.

EU leaders are "more aware than anybody of what is going on in China, in India in the BRICS, in Africa," and understand that preserving "a single market with a single currency which would be as solid and resilient as possible is, again, the programme of Europe for the future," Trichet added.

Meanwhile, the ECB president reiterated its opposition to a common eurozone bond as proposed by Luxembourg Prime Minister Jean-Claude Juncker.

The ECB has already "said that it was not necesssarily appropriate to have such kind of bonds" and there is "no new position of the governing council of the ECB on any new proposal," he said.

© 2010 AFP

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