Oct. 25 (Bloomberg) -- European Central Bank Executive Board member Lorenzo Bini Smaghi said monetary policy in the euro area cannot be used to bail out governments.
“Euro-area governments have to finance themselves directly in the market,” Bini Smaghi said during a speech in Frankfurt on Oct. 17, according to a text provided by the ECB. “This is sound and robust, because it avoids monetary financing and the risk of fiscal problems being solved through monetary financing.”
“In a crisis, such a constraint can become quite harsh, especially since the Maastricht Treaty did not foresee a situation in which a country would lose market access. Markets have perceived this as a fault line and tried to take advantage of it,” Bini Smaghi added.
Bini Smaghi said a “comprehensive solution” is needed to strengthen governance in the euro area and to end the debt crisis.
“A comprehensive, timely solution is needed now. I am confident that Europe’s leaders will find it,” he said.
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