MILAN, Italy (MNI) – European Central Bank Executive Board member
Lorenzo Bini Smaghi called Wednesday for an overhaul of public finances,
given high government debt and the prospects for moderate economic
growth in the years ahead.

“The crisis should teach us that we cant let public debt rise
anymore,” Bini Smaghi told reporters on the sidelines of a conference
here. “It has gotten too high.”

“With growth that will be gradual in the coming years, the role of
public financing and public debt in the economy needs to be completely
reconsidered,” he said. “Cuts need to be made, but also there needs to
be restructuring. This will mean that important reforms are necessary.”

“It was always projected that there would be slower growth in the
second half of the year after the pick-up in the first half,” he
reminded. “We had always expected a slowdown in the course of a gradual
recovery. We said it would be gradual and bumpy, so its in line with
our projections.”

“Ireland knows what it has to do, beginning with an ambitious
fiscal adjustment with concrete points to get to the goals it has set
for itself,” Bini Smaghi said. “They know that they have to do, they
have to do it rapidly.”

The high-deficit countries “need to make a credible fiscal
adjustment and implement it, like Greece is doing,” he said. “Everybody
has to do their homework. In some case it has to be more ambitious than
in others. But it has to be announced and implemented rapidly. That’s
what the markets are calling for.”

“Countries with a modern labor market, like Germany and France,
have already seen their unemployment fall,” Bini Smaghi noted. “It is
the time to look a certain reforms of the labor market to make sure this
growth, that will be, as we have always said, progressive and gradual,
translates into more employment. But some countries need major
structural changes to make the labor market function and allow companies
to hire rapidly.”

Regarding the bank stress tests conducted by the EU this summer,
Bini Smaghi said they “demonstrated clearly where changes needed to be
made, and I think that national governments and banks are working
towards that.”

The proposed Basel III reforms to boost bank capital ratios have
“the necessary gradualism to avoid adjustments that are too abrupt,” he
argued. “But we need to let the markets know that the banking system
will be strengthened. This is the only way to guarantee the flow of
long-term funding, funding that will then be transferred to the real
economy.”

[TOPICS: MT$$$$,M$$EC$,M$X$$$,MGX$$$]