Nov. 25 (Bloomberg) -- European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB.
“Governments cannot expect the ECB to finance public deficits,” Gonzalez-Paramo said in a speech in Oxford, England, yesterday. “It is now a time for politicians to be bold and courageous” and “complete as soon as possible the great project begun 60 years ago towards ever closer union,” he said.
The ECB has rebuffed calls from politicians and investors to use its unlimited firepower to backstop euro-area bond markets as the debt crisis spreads to Italy and Spain. Backed by Germany, the ECB says asking it to rescue governments would compromise its independence and cause long-term damage to the 17-nation monetary union.
Gonzalez-Paramo said it is an advantage for the euro area that the ECB is prohibited by its founding treaty from printing money to finance member states, known as monetary financing.
“They must be commensurately more ambitious in their economic policies and more disciplined in their management of public finances to support their debt levels,” he said. “By forcing policy makers to focus their reform efforts on the right priorities, the monetary financing prohibition offers an incentive to closer economic and financial union.”
‘Transfer of Sovereignty’
Germany and France said yesterday they will make proposals to amend European treaties in coming days to impose greater fiscal discipline on euro-area countries as they struggle to win back investor confidence. French President Nicolas Sarkozy also agreed to stop pressuring the ECB to do more after resistance from German Chancellor Angela Merkel.
Gonzalez-Paramo said there is a need for “more economic and financial integration for the euro area, with a significant transfer of sovereignty to the EMU level over fiscal, structural and financial policies.”
He said the ECB’s role is to preserve price stability and the purchasing power of the euro, not to be a lender of last resort for governments.
Market participants who call for that “may care only about the nominal value of their assets and the need to avoid losses,” Gonzalez-Paramo said. “Whether or not the underlying asset -- our currency as store of value -- has been depreciated seems unimportant to them. But survey after survey shows that the people, the citizens of the euro area, want price stability.”
In questions after his speech, Gonzalez-Paramo said that common bonds for the region will exist in future even if “at this point in time they would not be commensurate with the degree of integration in the euro area.”
“If you have a euro bond without a common budget, you are offering an easy way out for countries,” he said.
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