Brussels, 04/11/2010 (Agence Europe) - Speaking after the meeting of the European Central Bank (ECB) Governing Council on Thursday 4 November 2010 where it was decided to leave interest rates unchanged in the eurozone, the President of the ECB, Jean-Claude Trichet, called for the “strongest possible conditionality” for initiating the future eurozone crisis management mechanism. He said that setting up a mechanism of this nature ahead of any crisis should prevent any eurozone country running “loose economic policies”: “All features should be designed to induce soundest policies and designed to help effectively avoiding systemic financial instability”. He gave the example of the International Monetary Fund (IMF), which issues very tight conditions when helping countries to return to economic recovery. Trichet said that the IMF's standard starting point was not to start by planning to restructure a country's debt, unlike in Europe, where: “Here assumption is exactly the contrary”.
At the end of last week, the European Council decided to set up a permanent eurozone crisis management mechanism by 2012 (see EUROPE 10247) and instructed the European Commission to publish proposals on how such an instrument would operate. The president of the European Council, Herman Van Rompuy, was asked to consult his counterparts on a restricted revision of the Lisbon Treaty to ensure the mechanism has a sound legal basis. Germany is insisting that the new mechanism involve the private sector. The ECB is hesitant about this and also about the idea that the new mechanism would consider restructuring a eurozone country's debt in advance. “I made remarks at the EU Council addressed to the presidents and prime ministers. They were not for other interlocutors. I never made public what I said. Communication took place. I don't deny what was said but said by others”, commented Trichet.
On the work of the taskforce on reform of economic governance headed by Van Rompuy, the ECB President said: “The proposals represent a strengthening of the existing framework for fiscal and macroeconomic surveillance in the European Union. However, the Governing Council considers that they do not go as far as the quantum leap in the economic governance of Monetary Union that it has been calling for. The ECB is concerned that there would be insufficient automaticity in the implementation of fiscal surveillance, that there is no specification of the rule to reduce the government debt ratio, and that financial sanctions have not been explicitly retained under the macroeconomic surveillance procedure”. The ECB recommends that the macroeconomic surveillance procedure should focus on countries suffering from a slump in competitiveness and large current account deficits, include transparent and effective trigger mechanisms and wide publicity about the recommended measures.
Ireland. The Irish government was preparing on Thursday to unveil some of its austerity measures aiming to cut around €15 billion over four years to help the country get out of its economic problems exacerbated by the nationalisation of some of the Irish banking industry. The cost of a ten-year loan for Ireland has hit a record high, close to the interest rates demanded for Greece when it was bailed out recently. Trichet said that the ECB did not think that €15 billion would be enough but had no reason to believe that the markets would be disappointed at the measures to be announced. (M.B. trans fl)