MARRAKESH, Morocco (Reuters) - European Central Bank President Jean-Claude Trichet said on Saturday more ambitious reforms of euro zone budget rules were needed than those proposed by the European Commission.
Trichet’s comments add further fuel to a debate over European Union fiscal reforms ahead of a meeting of European finance ministers on Monday in Luxembourg to complete the biggest overhaul of the fiscal rules underpinning the euro since the single currency’s creation in 1999.
The ministers will seek to agree on a report for EU leaders on how to make the rules tougher to prevent another sovereign debt crisis, such as that triggered by Greece.
“A number of the commission’s proposals are going in the right direction, but for the euro area more ambitious reforms are needed to ensure the smooth functioning of monetary union,” Trichet said at the World Policy Conference in Marrakesh, stressing comments made last week in Washington.
The commission presented last month a set of proposals to impose sanctions much earlier, and with less ministerial discretion, on euro zone countries breaking the Stability and Growth pact, the EU fiscal rulebook.
Trichet said all deadlines under the excessive deficit procedure should be “significantly reduced” and sanctions should be applied “quasi-automatically.”
Furthermore, when economic indicators reveal fiscal problems, the countries concerned should be automatically submitted to an in-depth analysis including missions from the commission and the ECB.
An independent body of experts should be created to provide external assessments and the code of practice for European statistics should be enshrined in regulation.
Finally, member states should anchor the new surveillance framework in national legislation, he said.
Trichet said European countries needed to pursue structural reforms, even in the face of public resistance, in order to increase their growth potential.
“This potential for growth is too weak,” he said.
With the euro zone appearing to be out of immediate danger of a full-blown sovereign debt crisis and some governments facing large protests against austerity cuts, resolve to toughen fiscal rules may be waning.
Trichet said the “positive but modest” underlying momentum of the recovery remained in place in the euro zone, but recent data confirmed expectations for a moderation in the second half.
Inflation would remain moderate in 2011, he said, and inflation expectations over the medium to longer term continued to be in line with the ECB’s definition of price stability.
Weighing in on the currency debate, Trichet said excessive volatility and misalignment in the foreign exchange market were adverse from the viewpoint of global stability and growth.
“Concerning emerging countries which ... have big surpluses and which have indicated that they are committed to the path of greater exchange rate flexibility: this we think is one of the elements of the re-establishing of a favorable balance, of growth and the creation of jobs on a global level,” he said.
Reporting by Christian Lowe; writing by Sarah Marsh; editing by Keiron Henderson