The euro zone will have to get powers to limit the debt issuance of its members, intervene in national budgets and change national policies to build a deeper economic union, ECB Executive Board Member Joerg Asmussen said on Tuesday.
“The core of the current debate about the future of economic union has a name: the further sharing of sovereignty,” Asmussen said in a speech prepared for a seminar of the European Policy Centre in Brussels.
“It means endowing the euro area with the power to effectively prevent and correct unsustainable policies in every euro area member state,” he said.
“Concretely, this would imply that a euro area authority would have competence to limit countries' ability to issue debt and have intervention rights into national budgets, and to compel member states to correct their policies, be that in the fiscal, structural and financial fields,” he said.
Euro zone leaders agreed in June to start work on a banking, fiscal and economic union, which could complete the existing monetary union and prevent future debt crises.
Details of the first steps in the deeper integration process, which is likely to take 10 years, are to be discussed over the next six months.
The prospect of deeper integration in the euro zone signalled by that debate would help reassure investors that the euro was here to stay since the euro zone would be integrating rather than disintegrating.
“It is a clear signal to the markets: underestimate the degree of political commitment to the single currency at your own risk,” Asmussen said.
He also said the European Union and its institutions had to become tougher with countries that were too slow to address their economic problems and in this way threatened the economies of others.
He said excessive politeness and reluctance to intervene in the policies of euro zone countries had hampered the implementation of reforms in the European Union.
“This lack of peer pressure among decision-makers has real costs - as we had to learn painfully during this crisis,” Asmussen said.
“And, it seems, the lesson still has not been learnt completely: deadlines for the correction of excessive deficits are being relaxed; the corrective tools that are available even under the new procedures are simply not being used, as the cases of Spain and Cyprus in the recently conducted macroeconomic imbalance procedure illustrate.
“If mutual surveillance is meant to be effective, this needs to change,” Asmussen said.
“We cannot afford to allow some euro area countries to run policies which create a burden on others and destabilise the whole of the Economic and Monetary Union,” he said.
Asmussen stressed that the deeper euro area integration could only be sustainable if it had democratic support and accountability.
He said one way to do that was to involve strongly the national parliaments, which would debate the economic policy advice given to countries by the European Union's executive arm, the European Commission.
Euro zone leaders want the ECB to take over the supervision of banks in the euro zone as a first step to setting up a joint deposit guarantee scheme and a bank resolution fund.
Asmussen said the ECB was ready to play the role of a euro zone bank supervisor.
“But it is of utmost importance that this framework allows the ECB to act with effectiveness, independence and without risks to its reputation,” he said. “We will need strict arrangements to safeguard the independence of the ECB's monetary policy.”
“To say that the task ahead is complex is probably the understatement of the year. But we have to get it right. Even if it means that we need more time.” - Reuters