VIENNA (MNI) – The new fiscal rules agreed by Eurozone member
states is an important step toward restoring confidence in sovereign
debt markets, European Central Bank Executive Board member Peter Praet
“To accompany fiscal consolidation, bold and ambitious structural
reforms are essential,” Praet said in a text for delivery to the Fourth
World Policy Conference here.
The reforms “should be immediately carried out to help the euro
area countries improve competitiveness, increase the flexibility of
their economies and enhance their longer-term growth potential,” he
To counter the mistrust of investors, “your fundamentals have to be
right,” Praet told the attendees at the conference. “Buying government
bonds would not solve the problems.”
“In the view of the ECB’s Governing Council, a new fiscal compact
comprising a fundamental restatement of the fiscal rules, together with
the fiscal commitments that euro area governments have made, is the most
important precondition for restoring the normal functioning of financial
markets,” he said.
“The realization — not only among policy-makers — that the stakes
are extremely high is positive,” he said. “Now, of course politicians
say these are complex issues and we need more time. And the question is:
who gives that time? But the firm willingness to continue is
“It’s people understanding this collective interest that is very
important,” he reiterated.
“More than four years after the beginning of the financial crisis,
uncertainty continues to remain high, with substantial downside risk to
the economic outlook, notably for the euro area,” Praet said.
Asked whether monetary union is sustainable, Praet argued that “all
this currency and money creation was very often to avoid problems,” for
example in labor markets. “Taking the ‘easy way’ gives the illusion that
you don’t have to solve the problems,” he said.
Without recourse to more deficits and debt, “it is going to be
tough for some countries,” he conceded. “But it is feasible.”
In complex systems like Europe, one can either rely on a “central
command” to take decision or introduce “firewalls” within the system to
protect the real economy, the central banker explained.
“You can protect parts of the system against problems in other
parts of the system,” he said. “But If you don’t want too many firewalls
then you have to find a cooperative approach.”
“We at the ECB take our responsibilities,” Praet said. “Monetary
policy in the euro area will remain dedicated to our mandate, which is
to maintain price stability over the medium term.”
“The ECB will continue to remain an anchor of confidence and
stability, in a global economy characterized by marked uncertainties,”
he pledged. “This is the central contribution we can make to foster
sustainable growth, job creation and financial stability in the euro
area as whole.”