UPDATE 2-Spain says Europe should consider new powers for ECB

Mon Apr 8, 2013 11:59am EDT

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* Rajoy says Europeans should discuss issue in next months

* Germany has repeatedly damped talks on new ECB powers

By Julien Toyer

MADRID, April 8 (Reuters) - Spanish Prime Minister Mariano Rajoy said on Monday that Europe should look at changing the powers that the European Central Bank has, to align it more with other monetary authorities around the world.

"I believe that in Europe among all of us, we should look at whether the ECB should have the same powers as the rest of the world's central banks," Rajoy said in a news conference.

"We should give ourselves the instruments that other countries have," he said, answering a question about the shift in monetary policy recently decided by the Bank of Japan.

The founding treaty of the ECB gives it a primary mandate of price stability, which the central bank's policymaking Governing Council has taken to mean prices rising by close to, but below, 2 percent a year.

The treaty also states that the ECB may, if price stability allows, also "support general economic policies". Any change to the ECB's mandate would have to be signed off by all 27 EU member states.

During the euro zone debt crisis there have been calls to widen these powers but Germany has sought to damp any discussion on the issue, including a latest attempt from France earlier this year.

A barrage of monetary stimulus unleashed last Thursday by the Bank of Japan has revived such talk.

A U.S. Federal Reserve policymaker, Atlanta Fed President Dennis Lockhart, noted the BOJ's latest move left the ECB as the least accommodative of the developed world's big three central banks.

Some other major central banks have a more flexible mandate. For example, the U.S. Federal Reserve has a dual mandate of maintaining both low inflation and low unemployment.

The European Central Bank has pledged to support debt prices for euro zone countries that sign up to an international aid programme. But unlike the BoJ and other major central banks, its arsenal of stimulus measures does not currently include a quantitative easing programme of sovereign bond purchases.

GROWTH POLICIES

Last week, at his monthly press conference, ECB president Mario Draghi dismissed such talk and put the ball in the states' court.

"I think one should always be mindful of what the ECB can do and what it cannot do. We cannot replace capital that is lacking in the banking system. That is quite clear. We cannot compensate for lack of action by governments," he said.

"The ECB cannot replace governments' lack of action on the structural reform front."

Since he took office in late 2011, Rajoy has been a major proponent of a banking union that would put the banks of the 17-member euro zone under closer supervision by the ECB and that would aim to sever the link between sovereign borrowers and domestic lenders.

He has also repeatedly called for Europe to take more measures to stimulate growth. But on Monday he declined to detail what measures he has in mind.

A government source told Reuters last week Spain would this month revise down its economic growth forecast for 2013 to a fall of 1 percent in Gross Domestic Product and seek more time from the European Union to reduce its budget deficit as recession cuts deeper than previously expected.

The source said the government would also forecast economic growth of 1 percent in 2014. Rajoy said a change of gear in Europe economic policy would help meet this target.

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