The ongoing sovereign debt crisis in countries of eurozone owes its origins to governance failures, according to a senior Reserve Bank official.
Speaking at a conference of Kerala Management Association at Kochi on Friday, RBI executive director G Padmanabhan said the 2008 global crisis and the current debt problem in eurozone suggests that merely having a strong regulatory and supervisory framework is not enough, without proper enforcement of the rules and regulations.
"If we take a careful look at the present sovereign debt crisis roiling the eurozone, it should not take us too long to realise that this crisis also owes its origins to governance failures.
"The only point of difference between this and the 2008 crisis is that the entities which are at the root of the present crisis are sovereign governments and not the usual suspects which are 'profit-seeking' corporations," Padmanabhan said.
The text of his speech was uploaded in the central bank's website.
According to Padmanabhan, there was a clear element of acquiescence on the part of core euro members to enlarge the circle of Euro zone at the cost of non-compliance with the tenets of Maastricht Treaty.
"How did the crisis surface? By admission of the Greek Government that the fiscal statistics it had earlier presented may not be true and the true position could be significantly worse," he said.
Padmanabhan said the European debt crisis has prompted a discussion on governance and sovereign debt.
"There seems to be interplay between governance performance and the debt level. Better governed countries can afford higher levels of debt. Conversely, badly governed countries can tolerate only lower levels of debt," he said.
According to him, mere financial and economic measures, in absence of reform in governance, may not be sufficient to address the problems countries like Greece face.
"This is also why even after the Greek parliament passed the austerity measures as a precondition for further assistance, the market is reluctant to accept it as a watershed and displays a great deal of skepticism," he said.