The outgoing president of the European Central Bank called for changes to the EU treaty to rein in countries whose polices were threatening to imperil the entire bloc yesterday, as European leaders faced pressure to find a solution to the debt crisis this week.
Jean-Claude Trichet said the treaty should be changed to prevent member states straying from common norms, implying the need for a closer union under which decisions could be imposed on errant countries. "In my view it is necessary to change the treaty to prevent one member state from straying and creating problems for all the others," he said. "To do this, one even needs to be able to impose decisions."
The Continent's top monetary policymaker, who will hand over the reins of the ECB to Italy's Mario Draghi at the end of this month, added that the eurozone's debt problems had come about because some members had not kept a sufficiently tight leash on their finances.
"We don't have a federal budget, we don't have a political federation so we have to fully respect the constraints and the mutual supervision rules that exist in the eurozone," Mr Trichet said in an interview on French radio. "It is the case that in Europe we have a bigger problem than others and this is a problem of supervision and governance within the eurozone."
He did, however, add that, even without a new treaty, changes to the current set of rules would better applied in light of the crisis. "I think that the lesson of the cost of negligence, of the cost of lax management is sufficiently potent that in future rules... will be followed much more strictly," he said.
The comments came after G20 finance ministers and central bankers stepped up the pressure on European leaders to come up with a solution to the currency bloc's debt crisis. After meeting in Paris to discuss the issue at the weekend, they said that the EU summit on October 23 should "decisively address the current challenges through a comprehensive plan".
The Japanese finance minister, Jun Azumi, warned that if left unchecked the crisis in Europe could affect the strong growth seen in emerging market economies.
This concern was also highlighted by the head of the International Monetary Fund (IMF), Christine Lagarde, who said: "We heard loud and clear that the emerging markets, in particular, were very concerned about the risk of contagion from advanced economies. There was a consensus around the room that the key priority at this point in time is for the members of the eurozone and Europeans in general to address the overall complex issues."
The deputy head of the IMF's European Department, Ajai Chopra, also called for a pan-European deposit insurance scheme and closer coordination of regulation to stabilise the banking system, which has sparked concern among investors fearful of the impact of the sovereign debt crisis on banking balance sheets.
"Market tensions are fuelled by a perceived lack of cohesion by European policymakers and concerns about the resilience of banks and the speed of adjustment at the country level," he said, adding that the European Banking Authority should be given broader powers.