By Bruno Waterfield - 22nd November 2006
Euro members should hand over more national budget powers to the European level, EU monetary affairs chief Joaquin Almunia said on Wednesday.
Presenting an eight-year review of the euro, the European commissioner stressed that more needed to be done to push through reforms and to ensure fiscal stability.
“The way we have been working so far shows that economic coordination and the governance of the euro area in general is insufficient,” he said.
“We need to accept that national policies are a common concern for all the members of the euro area and can have spillover effects for all the members of the monetary union.”
Almunia will be pushing eurozone members to hand over more fiscal coordination to the European level before the 10th anniversary of monetary union on January 1 2009.
Key for the commission is more eurozone or EU level decision-making on structural reform and consolidation of public finances, beyond existing stability rules on spending.
“We need to increase coordination to advance fiscal consolidation efforts during the good times of the cycle, the preventative part… with the same rigour that we now implement the corrective part of the Stability and Growth Pact, namely the excessive deficit procedure.”
“We need to pay at the euro area level specific attention to the fact that structural reforms are needed not only because of national interests but are of the utmost importance to the functioning of the euro area,” he said.
“The weakness of the progress of reforms… creates problems for the good functioning of the economic and monetary union.”
Economic and budgetary policies are currently handled by informal monthly eurogroup meetings of finance ministers, with a traditional focus on enforcing annual budget deficit ceilings.
But Almunia would like to the scope of fiscal discussions increased to encourage often controversial welfare and fiscal reforms, with the eurogroup given formal powers.
The move would also see a new enhanced role for the commission in drawing up reports on national budget and reform measures.
“I think that the eurogroup should take on an institutional role, not just informal… the eurozone should have more precise coordination powers,” he said.
Speaking in the European parliament, Luxembourg leader and eurogroup chairman Jean-Claude Juncker promised that finance ministers would not meddle with monetary policy.
Issues such as interest rates are firmly in the hands of independent European Central Bank, sometimes to the dismay of national capitals.
“We have to strengthen our role, which is not to say in any way that we want to weaken the ECB,” Juncker told MEPs.
Almunia stressed that the ECB must remain independent but with more dialogue on inflation with finance ministers.
“The best thing we can do for the ECB is to respect its independence and to improve discussions among institutions,” he said.
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