Euro zone reforms designed to penalize spendthrift peripheral nations are still not adequate to alleviate the currency bloc’s problems, said European Central Bank (ECB) governing council member Yves Mersch.
Mersch, who is also governor of the Bank of Luxembourg, is seeking more drastic actions against countries whose deficits are higher than 3 percent of GDP, including near-automatic sanctions.
Recent European proposals on euro-zone economic governance are a step in the right direction, but are not ambitious enough to ensure healthy and effective functioning of the monetary union, Mersch wrote in an end-of-year address.
Mersch also said that debt levels must be given more prominence, in keeping with the intent of the euro zone’s Stability and Growth Pact, which, among other things, requires member nations to keep debt below 60 percent of GDP.
The year which is coming to an end has been marked by sovereign-debt crises in certain euro-member countries, he wrote.
One sole lesson is to be learnt from these events: a member of a monetary union cannot, in any case, allow its [competitiveness] to decline, year after year, relative to its principal trading partners.
Mersch also warned that euro zone countries need to more closely monitor and scrutinize each other’s economic policies.
Beyond these new mechanisms, whose activation should also occur only in exceptional circumstances and under strict compliance, it is crucial that states should learn from this crisis by intensifying their efforts to consolidate, he added.