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ECB calls for tougher economic rules in eurozone

ECB calls for tougher economic rules in eurozone

The European Central Bank warned Tuesday that the eurozone needs not only much stricter rules on government borrowing but also tighter oversight of overspending by households and businesses.
The warning comes as the European Union and its member states haggle over how to improve the so-called Stability and Growth Pact, whose caps on budget deficits and debts were never strictly enforced in the years leading up to the debt crisis.
Greece and Ireland have already been forced to seek massive international bailouts, with many economists fearing that Portugal _ and possibly much larger Spain _ might soon follow suit.
At the heart of the overhaul of those rules is the realization that not only government spending needs to be kept in check, but also other factors such as high debt among households and private firms like banks.
In the fall, the European Commission, the EU's executive, proposed a range of new rules that would not only sanction overspending governments but also ring alarm bells when private debts, overall competitiveness and the current account take a wrong turn. The current account measures trade and capital flows in and out of a country.
Portugal's large current account deficit is often cited as one of the country's main problems, while it was huge losses at banks that turned Ireland from the region's economic star into a basket case.
However, the ECB said the 17-country eurozone needs "a more ambitious governance structure" than even the one proposed by the Commission, which is already being watered down by eurozone governments worried about their national sovereignty.
In addition to more automatic and immediate sanctions for rule-breakers, the bank, which oversees monetary policy in the eurozone, said governments should include "strong national budgetary frameworks" into national law and establish independent fiscal policy institutions.
That demand is similar to a proposal made by Germany that would force other countries to follow its example and include a so-called "debt brake" into their constitutions as part of a broader push for more economic coordination in the eurozone.
The ECB has already voiced its discontent with attempts by national governments to water down the Commission's proposals, but Tuesday's statement goes beyond that.
In the past the ECB supported the Commission's proposals, said Amadeu Altafaj-Tardio, spokesman for the EU's Monetary Affairs Commissioner Olli Rehn. "We think that the proposals from the Commission represent the necessary level of ambition to ensure reinforced economic governance to ensure the credibility of the euro area," Altafaj Tardio said.


Updated : 2021-10-18 00:59 GMT+08:00