Spain, the latest combat zone in Europe’s long-running debt wars, urged the eurozone to set up a new fiscal authority to manage the bloc’s finances and send a clear signal to markets that the single currency project is irreversible.
Spanish Prime Minister Mariano Rajoy said the authority would also go a long way to alleviating Spain’s woes, which, along with the prospect of a Greek euro exit, have threatened to derail the single currency project.
It is not the first time a European leader has proposed creating such an authority, but the problems and the size of Spain — a country deemed too big to fail — have prompted EU policymakers to hurriedly consider measures such as creating a fiscal and banking union ahead of a EU summit on June 28 and 29.
Germany, the paymaster of the eurozone, and others insist such a move can only happen as part of a drive to much closer fiscal union and relinquishing of national sovereignty.
The risk premium investors demand to hold Spanish 10-year debt rather than German bonds rose to its highest since the launch of the euro — 548 basis points — on Friday.
The Spanish government, which has hiked taxes, slashed spending, cut social benefits and bailed out troubled banks, says that there is little else it can do and the EU should now act to ease the country’s liquidity concerns.
In private, senior Spanish officials have said this could be done by using European money to recapitalize directly ailing banks or through a direct intervention of the European Central Bank (ECB) on the bond market.
They have also said the eurozone should quickly move toward a fiscal union to complete its 13-year monetary union, but Rajoy went a step further by making a formal offer.
“The European Union needs to reinforce its architecture,” Rajoy said at an event in Sitges, Catalonia Province. “This entails moving towards more integration, transferring more sovereignty, especially in the fiscal field.”
“And this means a compromise to create a new European fiscal authority which would guide the fiscal policy in the eurozone, harmonize the fiscal policy of member states and enable a centralized control of [public] finances,” he added.
He also said the authority would be in charge of managing European debts and should be constituted by countries of the eurozone meeting strict conditions.
Last week, ECB President Mario Draghi said EU leaders should break away from the incremental approach that has failed to get ahead of the eurozone debt crisis for more than two years and quickly clarify their vision for the future of the currency.
Adding to growing pressure for dramatic policy action at this month EU leaders’ summit, he said that the ECB could not fill the policy vacuum.
Establishing a new authority could require a change in the EU treaties, a usually lengthy and politically painful process that requires ratification in all 27 member states of the bloc.
A spokesman for European Commissioner for Economic and Monetary Affairs and the Euro Olli Rehn said draft legislation designed to step up financial discipline in the eurozone would create such a fiscal authority by granting new powers to the EU’s executive.
“This would grant enhanced powers to the European Commission on fiscal surveillance, including allowing the sanctioning of countries,” Amadeu Altafaj said. “Even before a budget is drafted and reaches the national parliament, the commission could ask for a revision of the budgetary plans if it considers this would not allow a country to meet its fiscal commitments, and thereby could endanger financial stability.”