Oct. 26 (Bloomberg) -- European Central Bank Governing Council member Yves Mersch said the euro area will need a new institution to monitor fiscal policies and prevent weaknesses developing in one country that could threaten the region.
“In the medium to long run, we will need an institution that is solely responsible for the euro zone,” Mersch said in a speech today in Florence, Italy. “A single monetary policy needs support from sound public finances and closer economic policy coordination with an agreed framework for national budgetary policies. This could be realized by either a European commissioner with special authority or a finance minister.”
European leaders are meeting in Brussels today for the second summit in four days to try to reach an agreement to bolster the region’s rescue fund, strengthen banks and relieve Greece to avoid contagion from the debt crisis spreading to Italy. Mersch said predictions that the 17-nation euro area will break up are “wrong.”
“The sovereign debt crisis has revealed that the euro area suffered from serious weaknesses in the fields of financial, fiscal and economic governance on the preventive side and had lacked a crisis resolution mechanism,” he said. “I am confident that Europe can also overcome these challenges.”
Mersch also said markets “seem to be irrationally pessimistic,” citing the difference between U.K. and Italian sovereign funding costs.
“There can be no doubt, however, that current and future steps for further European integration will be accompanied by a credible and stable euro that deserves the faith of financial markets, international investors,” he said.
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