LYON, France (MNI) – The Eurozone must reinforce the mechanisms of
mutual surveillance among member states with stronger governance in
order to avoid future crises, European Central Bank President
Jean-Claude Trichet argued Wednesday.

First of all, the existing fiscal rules embodied in the Stability
Pact must be “strictly respected,” Trichet stressed in a panel
discussion on European governance here.

The ECB has fulfilled its mission in guaranteeing price stability,
he said with satisfaction, noting that inflation expectations in the
Eurozone are better anchored than in any other industrialized country.

Now it is up to governments to construct a kind of federal
governance as a counterpart to the monetary federalism, Trichet said,
urging them to go “as far as possible” in the direction of a “quasi
budgetary and economic federation.”

“It is absolutely necessary to change the governance of Europe,”
Trichet insisted. “We don’t know where the march toward European unity
will end.”

Better governance will also bolster confidence, which is necessary
for a return to sustainable growth, he noted.

Surveillance of fiscal policies should be flanked by surveillance
of other economic criteria, for example unit labor costs and inflation,
he said. Countries that ignore the ECB’s price stability benchmark “take
considerable risks,” he warned.

Trichet urged governments to go as far as possible in structural
reforms as well. He cited Germany’s labor market reforms as an example,
highlighting the fact that unemployment there has been on the decline
since the start of crisis. “Everything depends on competitiveness in the
end,” he said.

Trichet said he did not believe the crisis would repeat itself, but
he stressed the need to be “permanently alert” in a rapidly changing
situation and noted the structures being established on both sides of
the Atlantic to monitor and prevent systemic risks.

Asked how the ECB can deal with the fresh liquidity the Federal
Reserve intends to inject into the US economy and its impact on the euro
exchange rate, Trichet returned to his mantra that US officials,
including Fed Chairman Ben Bernanke, say that a strong dollar is in the
interest of the US.

“I am convinced it is in the interest of the United States and
Europe and the international community to have a strong dollar,” he
reiterated.

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