FRANKFURT (Reuters) - Europe needs a rainy-day fund to support it in the event of any future crisis, and the European Central Bank will have “no excuse” not to buy up government debt to ease any liquidity crunches, the ECB’s outgoing vice president said on Thursday.
Speaking at a farewell conference, Vitor Constancio said that the 19-member currency bloc still has a long to-do list before it is ready for the next financial shock.
The top item is accepting the ECB’s firefighting role, a function often challenged in Germany, Europe’s biggest economy, he said.
“From now on, the ECB will have no excuse to not fulfil its mandate in addressing the impairment of the single monetary policy transmission by intervening in the sovereign bond market... to deal with acute liquidity stress,” said Constancio, 74, who ends 18 years on the ECB’s Governing Council at the end of May.
The only alternative would be a Eurobond for the bloc, Constancio said, a politically unviable construction rejected by several key countries on fears that taxpayers in core countries would be forced to underwrite fiscal irresponsibility elsewhere.
Italy’s incoming government is pushing for controversial spending hikes at the risk of breaking European Union spending rules. But Constancio argued that enforcement of fiscal discipline was not at the top of his list of reforms, with a central fiscal stability function and the launch of a European safe asset all taking priority.
“What is necessary is a stabilisation fund in periods of significant shocks, in the form of a ‘rainy-day’ fund that would provide transfers to be used in public spending with high multipliers for maximum effect, like investment or income support to the unemployed,” he said.
Fiscal stabilisation could kick in as unemployment rises and should provide incentives for structural reforms, Constancio argued.
Completing the banking union and creating a genuine capital markets union are also among the priorities while an improved fiscal rule to discipline countries is also needed, Constancio said.
Reporting By Francesco Canepa and Balazs Koranyi; Editing by Hugh Lawson