The eurozone needs a common finance minister and should consider issuing region-wide bonds to help pull it out of its economic crisis, said International Monetary Fund head Christine Lagarde.
“What is needed is a collective determination to advance towards a key stage in the development of the eurozone,” Lagarde told daily Liberation in an interview published yesterday.
“We have to go beyond monetary union to bring together budgetary policies, also with supervisory instruments for the financial sector in the wider sense and with mechanisms for resolving banking crises. All this would be under a eurozone authority and not national central banks.”
Mindful of the deepening crisis, EU leaders are meeting at a June 28-29 summit where they are expected to draw up a roadmap to fiscal union, but Lagarde’s suggestions could raise eyebrows in Berlin.
Germany, which as Europe’s paymaster has shouldered the lion’s share of the bloc’s bailouts, insists fiscal union must be implemented before it would even consider more radical changes such as common bonds that would expose it to further fallout from the crisis.
“My view is that within a short period, perhaps less than three months, it is necessary for the Europeans, particularly within the eurozone, to give strong indications on their collective willingness to reinforce their monetary union,” said Lagarde.
Speaking as Greeks prepared to vote in an election that will shape the eurozone’s future, Lagarde said it was important to raise the idea of a European treasury able to issue debt for the whole of the eurozone.
“This can’t be done overnight but it is important to assert this collective principle,” she said.
Differences between the eurozone’s biggest economies Germany and France — notably over joint eurozone bond issuance — have fuelled tensions ahead of the Greek ballot.
Central banks have indicated they are prepared to intervene if there is turmoil on markets following the vote, and the eurozone crisis will dominate talks between the world’s top economies in Mexico next week.
Meanwhile, Eurogroup head Jean-Claude Juncker warned Greeks not to turn their backs on the euro, saying in a newspaper interview that a win by anti-bailout radical leftists in a vote today would have “unforeseeable” consequences for the monetary union.
The radical leftist Syriza party is racing neck-and-neck with the conservative New Democracy party ahead of the election, which could decide if Greece stays in the eurozone and spread turmoil across global financial markets.
Syriza leader Alexis Tsipras is threatening to tear up the punishing terms of the €130bn ($164.12bn) bailout that is keeping Greece from bankruptcy.
“If the radical left wins — which cannot be ruled out — the consequences for the currency union are unforeseeable,” Juncker, head of the group of eurozone finance ministers, told Austrian paper Kurier.
“We will have to speak to any government. I can only warn everyone against leaving the currency union. The internal cohesion of the eurozone would be in danger.”
In addition to the economic and social consequences for Greece itself, an exit would damage the entire currency union, he said, adding: “This has to be avoided. This would send a devastating signal. The Greeks must be aware of this.” from gulf times.