Euro Area Needs a Central Fiscal Instrument, ECB's Guindos Says
(Bloomberg) -- The European Central Bank vice president called for a centralized instrument to help improve the effectiveness of national policies across the euro area, in comments highlighting increased frustration in Frankfurt over the fiscal stance of the currency bloc.
In an interview with Spain’s El Pais newspaper, Luis de Guindos said the existing framework with a patchwork of policies wasn’t complementary to the ECB’s monetary policy.
“That is why I am convinced of the need for a centralized and independent fiscal instrument,” Guindos said in the interview published Saturday. “It would also provide support to national fiscal policies.”
Last month, euro-area finance ministers agreed on the main elements of a small budget for the currency bloc, capping two years of fraught negotiations over a tool that falls far short of the original sweeping vision of French President Emmanuel Macron. While the ECB has become increasingly vocal in demanding a more active fiscal policy to help boost chronically weak inflation and growth, its appeals have fallen on deaf ears in Germany.
Guindos’s latest comments echo Mario Draghi’s parting remarks this week. “There is one thing that all the successful monetary unions have, and that’s a central fiscal capacity -- in other words, whether this should be a budget or should be a system of insurance,” the outgoing ECB president told reporters at his final press conference in Frankfurt.
Slower growth across the region made action from institutions other than the ECB pivotal, to help stave off the risk of a prolonged period of low growth, amid ever louder warnings of a Japanification of Europe. Guindos said Germany -- the continent’s largest economy -- could see economic expansion remain stuck below a rate of less than 1.5% for an extended time.
The debate over the creation of new mechanisms comes as the euro zone faces the fallout from global trade wars and Brexit. The ECB is also dealing with acrimony in its own ranks after disagreements over the recent stimulus package, which incoming new President Christine Lagarde has pledged to address.
Members of the ECB’s Governing Council should mend fences and build a consensus around key decisions, Guindos said. Lagarde’s clear communication style would help with this, he added.
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