AACHEN, Germany (MNI) – The Eurozone should pursue a path of
increasing economic integration that could ultimately lead to a unified
EMU Finance Ministry, European Central Bank President Jean-Claude
Trichet proposed on Thursday.

In a speech accepting the prestigious International Charlemagne
Prize, awarded by the city of Aachen, Trichet sketched out his boldest
vision yet for economic integration in the euro area.

“In this union of tomorrow, or the day after tomorrow, would it be
too bold, in the economic field, with a single market, a single currency
and a single central bank, to envisage a Ministry of Finance of the
union?” he asked.

This future ministry would not necessarily administer a large
federal budget, the ECB chief said, but it would exert direct authority
in three areas. First, it would monitor the fiscal and competitive
policies of member states and take direct responsibility for countries
in need of financial assistance that were not in compliance with the EU
rules.

The ministry would also assume “all the typical responsibilities of
the executive branches as regards the union’s integrated financial
sector, so as to accompany the full integration of financial services,”
he said. And, it would represent the monetary union in international
financial institutions, such as the IMF and G-20.

While this vision of an EMU Finance Ministry is still in the
future, action is required now to solve the euro area’s current
problems, Trichet said.

“EMU’s difficulties require a major strengthening of the rules and
of the organizations that govern fiscal and economic policies,” he said.

Trichet called on the European Commission, the European Council and
the European Parliament “to be very ambitious in reinforcing economic
governance in the euro area,” reiterating that, “we have called for a
quantum leap in governance now.”

He also argued for greater intervention by EMU authorities in the
affairs of individual states that fail to comply with the fiscal and
economic requirements of the union. However, he conceded that this would
“naturally demand a change of the treaty.”

“I am aware that some observers have concerns about where this
leads. The line between regional solidarity and individual
responsibility could become blurred if the conditionality is not
rigorously complied with,” Trichet observed.

For countries in need of aid, such as Greece, Portugal and Ireland,
“as a first stage it is justified to provide financial assistance in the
context of a strong adjustment program. It is appropriate to give
countries an opportunity to put the situation right themselves and to
restore stability,” he said.

“At the same time, such assistance is in the interest of the euro
area as a whole, as it prevents the crisis spreading in a way that
causes harm to other countries. It is of paramount importance that
adjustment occurs,” Trichet argued.

However, “if a country is still not delivering, I think all would
agree that the second stage has to be different,” he said. “Would it go
too far if we envisaged at the second stage giving euro area authorities
much deeper and authoritative say in the formation of the country’s
economic policies if these go harmfully astray — a direct influence,
well over and above the reinforced surveillance that is presently
envisaged?”

He added: “The rationale for this approach would be to find a
balance between the independence of countries and the interdependence of
their actions, especially in exceptional circumstances.”

Trichet also defended the record of EMU, and by implication the
institution he has headed for the last 7 1/2 years.

“EMU has brought monetary stability. The euro is a solid and
credible currency, trusted by our fellow citizens, investors and
savers,” he said. “There is no crisis of the euro.”

Trichet reiterated the separation between interest rate decisions,
intended to maintain price stability, and the bank’s nonstandard
policies, including unlimited liquidity provision and sovereign bond
purchases, which he said are “aimed at restoring a better transmission
of our monetary policy in these abnormal market conditions.”

–Frankfurt bureau, +49-69-720-142; jtreeck@marketnews.com

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