ECB chief tells governments to harden up on budgets

The head of the European Central Bank Jean-Claude Trichet told EU governments on Monday to face up to their responsibilities and crack down on their budget overspending. Speaking after a weekend when European Union leaders agreed to set up a permanent national rescue fund for eurozone members but without providing full details, Trichet insisted that the crisis hanging over the eurozone was "not a crisis of the euro".
Trichet told French Europe One radio: "We ask the governments and other institutions to live up to their responsibilities." He said that governments should face up to these responsibilities individually so that the burden of expenditure today did not fall "on the children and the grandchildren."
They should also act in a more collegiate way "by means of far better governance and through a financial stabilisation fund capable of taking on all the responsibilities put on it." His remarks come in a context in which the crisis has led to a dilution of national sovereignty for Greece and Ireland.
Difficult negotiations under way for months turn on the extent to which cross-border policymaking should interfere with national responsibilities, and the extent to which cross-border guarantees or financial transfers should be available from the strong to the weak. There is concern that such an arrangement might be seen as an easy way out for countries in difficulty over budget controls.
The eurozone sovereign debt crisis of the last 12 months has pushed EU leaders increasingly towards a fundamental redrawing of the architecture of the EU and eurozone, and maybe also much of its underlying philosophy. This is based largely on common management in some areas such as agriculture and monetary policy, but mainly on national sovereignty and responsibility for economic policy. The existing rescue fund was created in May as a consequence of the debt crisis which brough Greece to the verge of bankruptcy.
It is jointly funded by the European Union and International Monetary Fund to the extent of about 750 billion euros (1.0 trillion dollars). But some financial experts think that it should now be reinforced, in a context in which Ireland has just been rescued and Portugal and Spain are seen as being at risk. Trichet has indicated on several occasions that he believes the existing temporary system should be strengthened.
Trichet said that the crisis was "not a crisis of the euro but a crisis of financial stability." He also warned that suggestions that some countries under serious debt strains, such as Greece, should leave the eurozone as an "absurd hypothesis." He asserted: "The euro is a credible currency."