European Central Bank President Jean-Claude Trichet has warned that a Greek failure to stabilise its economy on its own would increase pressure for the international community to do it. In a speech in Germany, he also suggested the creation of a new euro zone finance ministry.
The ECB chief suggested creating a second stage of bail-outs under which the euro zone would take limited control of a member country's economic policies if it was not able to successfully implement adjustment programmes.
'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?,' said Trichet. He was speaking in Aachen after receiving an award for advancing the European cause.
Trichet did not name Greece directly but the EU, ECB and IMF are currently heaping pressure on Athens to redouble efforts to rebalance its finances in order to secure the next instalment of a €110 billion bail-out loan agreed in May 2010. Greece may need up to €70 billion, on top of the existing EU-IMF loan, to keep from going bankrupt as it is unlikely to be able to return quickly to international borrowing markets.
Trichet's comments dovetailed with the those of the ECB's chief economist, Juergen Stark, who told Italian business daily Il Sole 24 Ore that if Athens does not take the necessary measures, then it would become necessary for other parties to 'interfere'.
Trichet said providing assistance to euro zone members who face difficulties in adjusting their economies is in the interest of the entire currency bloc to prevent a crisis from spreading.
He said that under current bail-outs, all decisions remain in the hands of the country concerned, even if policy recommendations are not implemented, and this triggers difficulties for other euro zone members.
'In the new concept, it would be not only possible, but in some cases compulsory, in a second stage for the European authorities to take themselves decisions applicable in the economy concerned,' he added.
Trichet suggested assigning this role to a new euro zone finance ministry. Such a ministry would not necessarily need to be one that administers a large budget, he said, but be charged with 'the surveillance of both fiscal policies and competitiveness policies' of euro zone members.
The debate over a second bailout for Greece has largely pitted the ECB against Germany on involving private investors in Greek bonds but the latest comments may indicate that the guardian of the euro wants greater control over implementation of rescue programmes as part of any compromise.
The ECB has vociferously opposed forcing private investors to accept losses or delaying repayment, which would likely be considered a default by credit agencies.
