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European c-bankers seek carrots & sticks

india Updated: Jun 21, 2010 23:45 IST

Reuters
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The European Central Bank policymakers pressed governments on Monday to follow even stricter budget rules and open their books to external monitoring as they stepped up calls for a new carrot-and-stick approach to fiscal policy.

ECB President Jean-Claude said governments must bolster the confidence of consumers and investors by sticking to tough fiscal goals to ensure the euro zone recovery remains on track.

“The core of the economic union is the surveillance of fiscal policies,” he told a television channel, ahead of an address to European parliamentarians later on Monday.

“What is extremely important is that they (the governments) not only behave properly themselves, but they are under surveillance, under close monitoring by their peers.

“I call myself, on behalf of the Governing Council of the ECB, for decisive progress in implementing this surveillance.”

The ECB has called for a new system of incentives and sanctions to shore up the fiscal rules for the 16-nation euro zone, potentially involving an independent budget watchdog. Trichet will have the chance to outline the ECB's proposals, released last Thursday, in an appearance before the European Parliament’s economics committee.

Governing Council member Christian Noyer said the recent flare-up in market tensions — which drove up yields on the bonds of countries perceived to be struggling with public debt and deficits — showed the need for more discipline. “Doubts about the sustainability of public finances in many countries lie at the root of current uncertainty,” Noyer, who is also governor of the Bank of France, told a business conference in Paris.

“A condition for market tensions to abate is that budgetary discipline is implemented rigorously.” Finland's Erkki Liikanen said policy should also focus on preventing a rise in debt to unsustainable levels.