ECB chief seeks more bailout fund flexibility

FRANKFURT: European Central Bank president Jean-Claude Trichet said European governments should consider extending and broadening the region’s bailout fund to help fight the fiscal crisis.

“We’re calling for maximum flexibility and maximum capacity, quantitatively and qualitatively,” Trichet told reporters at an event in Frankfurt late on Monday, responding to a question whether the European Financial Stability Facility should be able to buy government bonds.

The ECB is putting pressure on governments to step up their response to the region’s debt crisis after market turmoil forced Ireland last month to become the second nation after Greece to seek external aid. ECB vice president Vitor Constancio said on December 10 that an increase of the 440 billion-euro ($592 billion) rescue fund and more flexibility would be “helpful.”

“In some countries, there remain significant concerns about the sustainability of their own fiscal positions,” Trichet said. “Each country has to put its own house in order. This is no time for complacency in any respect.”

Governments across the region have embarked on programmes to bring deficits back in line with the European Union’s budget rules. The Irish government last week pledged spending cuts worth 6 billion euros in 2011 ranging from child benefits to government salaries to push down the country’s budget shortfall.

“I am sure that the program is suited to bring about a sustainable stabilization of the Irish economy and soothe tensions in financial markets that are associated with the Irish fiscal problems and the reorganisation of its banking sector ,” the ECB president said. “The programme will also contribute to restoring confidence and safeguarding financial stability in the euro area as a whole.”

While finance ministers agreed in October to toughen sanctions for breaches of European fiscal rules, they stopped short of more automatic penalties that the ECB and countries including Germany had demanded.