Foreign Policy Blogs

European Central Bank boss calls for budgetary federation

trichetMore Europe or else. Considering the problems facing the euro, more Europe seems to be the only alternative to a euro meltdown that could jeopardize the entire European project. European Central Bank boss, Jean-Claude Trichet, is not in doubt. In a meeting with the European Parliament´s economic and monetary affairs committee, Trichet called for a budgetary federation, stating that; “We could achieve that (a balanced eurozone) if there is strong monitoring and supervision of what there is… Because what exists doesn’t correspond with the actual situation that we are facing. It is a situation where we need quasi-federation of the budget.” 

 

Trichet is referring to the imbalances and centrifugal forces the European currency is experiencing due to it consisting of a mammoth monetary union – straddling economies of very different development levels – while simultaneously not possessing the fiscal tools of, say, the US. For example, the US Federal Bank, as opposed to the ECB, can issue bonds to finance the country´s debt. In Europe, on the other hand, bonds are issued by individual member states making them a more risky investment, which drives the bond yields up, thus making it more expensive for individual countries to service their debts.   

 

But of course, more Europe is not what Europeans seems to be yearning for at the moment… Much anger exists over the austerity measures many consider to be imposed upon them by the EU.  In the “good old days” a country could devalue its currency to maintain competitiveness. This is of course not an option in the single currency. In the current situation, the euro can seem like a curse, as membership forces participants to slash budgets to maintain their competitiveness. Trichet, however, remains optimistic, stating that one should not underestimate the resolve of European leaders to save the euro. We shall see. This blogger hopes Trichet is right.  

 

 

 

 

 

Author

Finn Maigaard

Finn Maigaard holds an MA in history from the University of Copenhagen. As an MA student Finn focused on diplomatic history culminating in a thesis on US-Danish security cooperation in the Cold War. Finn also interned at the Hudson Institute's Political-Military Center, where he concentrated on the EU's role as a security institution, and at the World Affairs Institute as a Communications/Editorial Research Assistant. Finn currently resides in Washington, DC and works as a freelance writer, and as Program Coordinator at the University of Maryland's National Foreign Language Center.