ECB chief repeats call for EU fiscal federation

08:44, June 22, 2010      

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The European Union (EU) needs to be a fiscal federation by strengthening budgetary surveillance in order to avoid repeat of the current debt crisis, the European Central Bank chief said on Monday.

"Regards fiscal federation, we need the equivalent of a fiscal federation. We are not in a political federation. We need a set of rules which are very serious and stringent in monitoring budgetary policy," ECB President Jean-Claude Trichet told the European Parliament.

"I always said that with a single currency and without a full- fledged federation, we need the equivalent of a strong framework. That framework is the Stability and Growth Pact," he added, referring to the EU's budgetary rulebook.

Although the EU's Stability and Growth Pact requires a member state to keep its budgetary deficit and public debt under certain limits, countries like Greece just turned a deaf ear to the rules, which sowed the seeds of the debt crisis.

As a key part of ongoing reforms, EU leaders agreed at a summit last week that budgetary discipline in the 27-nation bloc should be strengthened through peer review of a member state's budgetary plan and sanctions against offenders.

The Frankfurt-based ECB has been a strong supporter of more rigorous implementation of the EU budgetary rules.

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