Europe should consider strengthening central control of economic policy if efforts to deal with its debt crisis do not deliver results, European Central Bank President Jean-Claude Trichet said on Thursday.
Accepting a prize for his contribution to European unification, Trichet laid out ideas including the formation of a European Union finance ministry and a veto for EU authorities over spending and other major domestic policy decisions.
As a first stage, it is justified to provide financial assistance in the context of a strong adjustment program, Trichet said. But if a country is still not delivering, I think all would agree that the second stage has to be different.
Would it go too far if we envisaged, at this second stage, giving euro area authorities a much deeper and authoritative say in the formation of the country's economic policies if these go harmfully astray?
European policymakers are struggling toward a new aid package for Greece that is expected to include new loans, fresh austerity commitments and a stepped-up privatization program, potentially supervised from outside.
In a speech in Singapore on Thursday, Chancellor Angela Merkel reiterated Germany's demands for closer coordination of European economic policies.
In the new concept, it would be not only possible, but in some cases compulsory, in the second stage for the European authorities -- namely the Council on the basis of a proposal by the Commission, in liaison with the ECB -- to take themselves decisions applicable in the economy concerned, Trichet said.
One way this could be imagined is for European authorities to have the right to veto some national economic policy decisions. This remit could include in particular major fiscal spending items and elements essential for the country's competitiveness.
Looking longer-term, he suggested a central finance ministry would fit with the existing single market, single currency and a single central bank.
Not necessarily a ministry of finance that administers a large federal budget. But a ministry of finance that would exert direct responsibilities in at least three domains: first, the surveillance of both fiscal policies and competitiveness policies.
Second, all the typical responsibilities of the executive branches as regards the union's integrated financial sector.
Third, the representation of the union confederation in international financial institutions.
(Reporting by Sakari Suoninen; editing by Patrick Graham)