CAMBRIDGE, Massachusetts (Reuters) - Governments have a key role in solving Europe’s sovereign debt crisis, and central banks can buy time but not take their place, European Central Bank Executive Board member Benoit Coeure said on Saturday.
The euro zone debt crisis has wrought havoc in the peripheral countries for three years, and the austerity-weary population is increasingly demanding an end to budget-balancing measures, seen as worsening the crisis.
A huge protest vote by Italians enraged by economic hardship and political corruption this week leaves slim prospects for a durable, reform-minded government in Rome, and election winner Beppe Grillo described Italy as “overwhelmed” by debt.
Coeure said, however, that there is no alternative for governments to reform and restoring sustainable public finances, and added that delaying reforms had costs attached to it.
“A central bank can help to mitigate the impact of the crisis, but the steps it takes cannot be a permanent substitute for resolute action by governments,” Coeure said in a speech at Harvard University in Cambridge, Massachusetts.
“The central bank can buy time for political bodies to act, but it cannot buy enough time for them not to act.”
One challenge that Europe’s leaders face in solving the debt crisis is that the average resident of the bloc feels little connection to the EU leadership, he said.
“People in Europe generally feel disconnected from EU decision-making and question whether their voice is being heard,” Coeure said. “People do not know who really represents them in Europe. Is it their prime minister? Is it their member of the European Parliament? Is it their local representative? They don’t know. Instead, they see a process controlled by elites with no truly democratic credentials.”
That is a particular concern given that many of the steps urged to combat the debt crisis - including austerity spending cuts - have strained relationships among Europeans, both between nations and generations, Coeure said.
But Coeure stopped short offering suggestions of how to help Europeans feel a greater connection to their ruling institutions.
“It’s certainly not the role of the ECB to prescribe the solutions,” the French official said. “This is obviously an entirely political discussion.”
Reporting by Scott Malone, writing by Sakari Suoninen; editing by Ron Askew and Sandra Maler