BRUSSELS (MNI) – European rules on debt and deficit levels have
failed, and countries — particularly those in the Eurozone — need to
cede more power and submit to the scrutiny of an independent fiscal
agency, European Central Bank Governing Council Member Athanasios
Orphanides said on Friday.

Policymakers are searching for ways to bolster the EU fiscal rules,
which require countries to keep their budget deficits below 3% of their
annual gross domestic product and their outstanding debt below 60%.

The rules have “in the main, failed as member states have
demonstrated little ownership of fiscal targets to which they were
committed,” Orphanides, who heads the Central Bank of Cyprus, said in
the text of a speech delivered at the Center for Financial Studies
Research Conference in Athens.

“Improving economic governance in the euro area to the greatest
possible degree may require that member states give up some powers, in
the name of better cooperation and improved enforcement of the commonly
agreed rules that enhance stability in the euro area,” he said. He
added: “The ideal design would ask fiscal policymakers to give up part
of the power that allows them to pursue unsound fiscal policies for a
time.”

Integrating better “would increase the level of confidence in the
whole area,” Orphanides said.

“An independent EU-wide fiscal agency could be mandated to
scrutinize fiscal projections by member countries, with intrusive
investigations in cases where there are debt or deficit concerns,” he
proposed.

“Greater fiscal policy coordination could also be envisaged among
euro area member states, such as the adoption of stronger fiscal rules
setting limits on the growth of expenditures as a way to secure the
necessary budget consolidation in case of excessive deficit or debt
ratios,” he added.

Orphanides also advocated enhancing the powers of the EU statistics
agency, Eurostat “so that it could check in greater detail the quality
of reported data.”

Earlier this year, Greece ran into difficulty after revealing it
had a budget deficit more than quadruple the 3% limit. It lost access to
the capital markets and had to accept a E110 billion bail out package
from the International Monetary Fund and the Eurozone, in return for
implementing a strict set of austerity measures.

“The Greek government should be commended for taking the long view
and implementing the courageous programme of economic reforms,”
Orphanides said.

“I have confidence that successful implementation of the reforms
that are under way will revitalise the Greek economy, boosting the
economy’s potential and raising the welfare of the Greek people,” he
added.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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