(RTTNews) - Eurozone needs an independent budget authority to discipline members who breach fiscal rules, European Central Bank Governing Council Member Klass Knot said Monday.
Knot, who heads the Dutch central bank, said countries that fail to meet the budget rules of the European Union over a long term must eventually lose their sovereignty. A compulsory recovery must be made by an independent budget authority, not the ECB, he said in an interview published in the Dutch central bank's magazine.
Knot also called for automatic sanctions for countries with huge debt and large deficit. He said the power to take such decisions must be taken away from politicians.
The ECB has gone 'too far' in intervening in financial markets by measures such as buying bad loans, the policymaker said. He said he 'understands' why this happened. "We are in an extreme crisis, that requires exceptional measures," he said.
The issue of joint eurobonds is 'inevitable', Knot said. However, these should be treated as a 'last resort'. First countries must put their finances in order, reduce debt and bring it back within the prescribed limit of 60 percent, the policymaker said.
"You see that the interest rates for Southern European countries are so strong that these countries face acute problems," Knot said. "That cannot happen with Eurobonds."
Effective taxation measures, less spending and market reform are among the possible solutions to the debt crisis, Knot said. These are the only structural solutions available, but will take time, he said.
According to Knot, it is important that the ECB returns to normal monetary policy soon. But, the policymaker pointed out that the central bank cannot afford to go on pumping unlimited funds into the financial system as it will lead to high inflation. The central bank must stop the unlimited allocation, but it is not easy, he added. "The difficulty is to determine when is the right time," Knot said.
by RTT Staff Writer
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