Trichet (out of his mind) wants the power to declare a sovereign state bankrupt and take over its fiscal policy
May 25, 2012 Leave a comment
Europe could strengthen its monetary union by giving European politicians the power to declare a sovereign state bankrupt and take over its fiscal policy, the former head of the European Central Bank said in unveiling a bold proposal to salvage the euro.
The plan offered by Jean-Claude Trichet, who stepped down last November as ECB president, would address a fundamental weakness of the 13-year-old single currency, the survival of which is threatened by the Greek crisis.
The monetary union has always defied economic principles, because the euro was launched ahead of European fiscal or political union. This has caused strains for countries running huge budget deficits — namely Greece, Portugal, Ireland, Spain and Italy — that have led to financing difficulties and over-stretched banking systems.
For the European Union, a fully fledged United States of Europe where nation states cede a large chunk of fiscal authority to the federal government appears politically unpalatable, Trichet said.
An alternative is to activate the EU federal powers only in exceptional circumstances when a country’s budgetary policies threaten the broader monetary union, he said.
“Federation by exception seems to me not only necessary to make sure we have a solid Economic and Monetary Union, but it might also fit with the very nature of Europe in the long run. I don’t think we will have a big (centralized) EU budget,” Trichet said in a speech before the Peterson Institute of International Economics here.
“It is a quantum leap of governance, which I trust is necessary for the next step of European integration,” he said.
His proposal was presented in Washington on the eve of the G8 meeting of the world’s major economies, hosted by U.S. President Barack Obama who will press Europe to intensify its efforts to resolve the sovereign debt crisis, which threatens a fragile global recovery.
It also comes ahead of a critical meeting of EU leaders on May 23 to discuss ways to support growth. Its strict budgetary policies to date have led to recessions in many countries, political unrest and in Greece a political stalemate after recent elections.
Trichet said the building blocks already are in place for moving ahead with his fiscal plan.