European Central Bank Governing Council member Josef Bonnici said solidarity among European countries will be key to implementing structural reforms, suggesting nations enjoying lower refinancing costs should subsidize more-indebted nations.
“One has to recognize that in the current circumstances, the pursuit of a lower deficit by financially stressed countries is inevitable and brings about a short-term slowdown in the economy,” Bonnici said in a speech in Malta today. “An increased recourse to EU cohesion and solidarity funds may help alleviate the structural adjustment necessary and make the economy of the program countries more competitive at the same time.”
“Given the extent of the downturn in some member states, this option is likely to require a strengthening of the EU budget, which in turn needs to be financed,” Bonnici, who is also head of the Central Bank of Malta, said. “However, not all member states are in a stressed environment, and it may be possible to consider other financing options, especially where bond interest rates in some member states are rather low, even below the inflation rate. EU-level solidarity and cohesion assistance may prove a crucial catalyst to the required structural changes.”
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