European Central Bank policymakers pressed governments today 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 Trichet 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 television channel Russia Today, ahead of an address to European parliamentarians later today.
"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. Mr Trichet will have the chance to outline the ECB's proposals, released last Thursday, in an appearance before the European Parliament's economics committee this afternoon.
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," Mr Noyer, who is also governor of the Bank of France, told a business conference in Paris.
"Therefore, a condition for market tensions to abate is that budgetary discipline is implemented rigorously."
Greece's George Provopoulos said in an interview published in the Wall Street Journal that Greece's goal to cut its deficit to below 3 per cent in 2013 would put the country on a sustainable path for debt.
"The same mechanisms operating in Greece apply to the euro-area more generally. Therefore, it is essential that all countries stick to their commitments to correct high fiscal budget deficits and government debt to reduce fiscal vulnerability and build confidence," he said.
Finland's Erkki Liikanen said policy should also focus on preventing a rise in debt to unsustainable levels.
"The Stability Pact must be implemented with rigour and discipline, that is very clear," news agency Market News International reported him as saying. "But in addition to that, we must follow the over-leveraging in all sectors."
In the WSJ interview, Mr Provopoulos said euro zone central banks should consider selling government bonds bought under the purchase programme to the euro zone's new stabilisation fund, although he rejected the idea of a euro zone state defaulting.
"Although the issue whether the EU Stabilisation Fund would be able to purchase the debt obtained by the ECB under the Securities Markets Programme is not foreseen under the provisions of the Stabilisation Fund, the idea merits further consideration," he said.
The ECB has previously floated the idea of selling bonds bought under the purchase programme -- more than €47 billion euros by June 11th -- back to banks, but has not said what it will do with the bonds.
Barclays Capital economist Julian Callow said the suggestion implied some unease on the part of the ECB about the scope of central bank bond buys. Details on the amount of purchases settled by June 18 are due out later today.