PARIS (MNI) – Beyond fiscal consolidation, the Eurozone needs a
“concrete leap” towards more financial integration in order to overcome
the debt crisis and prosper over the longer term, ECB Governing Council
member Christian Noyer said Tuesday.
The “cure” of the crisis must start with deficit reduction and a
“more credible fiscal discipline framework,” the governor of the Bank of
France told a Europlace conference here.
“At current debt levels, economic agents would react to fiscal
permissiveness by delaying their own private expenditure,” Noyer warned.
“Financial markets would continue to impose very punitive interest rates
on our countries to compensate for the uncertainty in the fiscal
outlook.”
There is “no trade-off” between consolidation and measures to
enhance growth, since the benefits of consolidation “far outweigh” the
negative effects on demand in the short run, he argued.
There is also “some room” for public support for growth, especially
the kind of long-term growth-enhancing projects planned with the E120
billion package agreed by EU leaders last weekend, he said.
Structural reforms for goods, services and labor markets are also
essential to overcome the “competitiveness gaps” that have led to
imbalances within the Eurozone, Noyer stressed. “The progress already
made in many countries is impressive.”
Stronger financial integration in the banking sector requires
unified supervision at the ECB and decentralized implementation via the
national central banks, he said. A deposit guarantee scheme “with
massive firepower” is also needed, as is a banking resolution scheme.
Surmounting the “substantial obstacles” on the road towards fiscal
union will require “unfailing political will” from all Eurozone members,
Noyer said. “I think that we saw a demonstration of this will during the
summit of last week. The work on the financial union has now started and
we are determined to make it successful.”
–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com
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