Trichet Expects EU to Agree on More Automatic Enforcement of Budget Rules

By Martijn van der Starre and Jurjen van de Pol - Jan 23, 2011 4:41 AM PT


European Central Bank President Jean-Claude Trichet expects the European Union to agree on more automatic sanctions for violations of its budget rules.

“I hope very much and I would say I expect that this governance will be reinforced and that the quasi-automaticity for the start of the adjustment procedure and for the sanctions will be incorporated in the future governance,” Trichet said in an interview with Dutch television program “Buitenhof” broadcast today.

ECB policy makers are increasing the pressure on governments to adopt stricter rules after swelling budget deficits helped trigger Europe’s sovereign-debt crisis, which so far has forced bailouts of Greece and Ireland. EU governments plan to sign off on their version of revamped crisis-fighting- rules by the end of March.

Separately, Trichet said officials have to be “alert” to avoid second-round effects on inflation. “When you have such increase of commodity prices you have an immediate increase of CPI, which is unavoidable of course,” he said.

European inflation accelerated to the fastest pace in more than two years in December, led by surging energy costs, complicating the ECB’s efforts to deal with the sovereign debt crisis. Inflation quickened to 2.2 percent in December, the fastest since October 2008.

“What is important for us is to avoid that there is any increase of the other prices that would create a problem for price-stability in the medium term,” Trichet said.

When asked about a possible debt restructuring by Portugal, Greece or Ireland this year, Trichet said “this not the assumption that we have in mind.”