Euro zone needs growth and austerity: ECB's Asmussen

Mon May 21, 2012 12:55pm EDT
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By Annika Breidthardt

BERLIN (Reuters) - A European growth pact and deeper political integration in the euro zone could bolster the currency union, but there must be no softening of the bloc's fiscal pact on budget discipline, ECB policymaker Joerg Asmussen said on Monday.

Presenting a vision for Europe over the next 10 years, Asmussen, who joined the ECB's Executive Board this year after serving as German deputy finance minister, said the right crisis response was "not less, but more Europe" and that fiscal union was ultimately the right path.

There is a growing push in the euro zone, led by newly elected French President Francois Hollande, to do more to stimulate growth and not just focus on reducing deficits - German Chancellor Angela Merkel's mantra.

Asmussen said the debate on growth versus austerity was the "wrong debate" to hold.

"We need both," he said in a speech in Berlin, though he stressed the need for fiscal consolidation and reforms.

"The fiscal compact can be complemented by growth-enhancing measures. This makes sense as a supplement, but the fiscal compact cannot be renegotiated or softened," he said.

The ECB has helped fight the debt crisis by cutting interest rates to a record low of 1 percent, flooding financial markets with more than 1 trillion euros in three-year loans and buying struggling euro zone countries' bonds in the secondary market.

Asmussen stressed that the ECB's non-standard measures were of a temporary nature and could be withdrawn any time if inflation risks emerged.   Continued...

A sculpture showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt February 29, 2012. REUTERS/Alex Domanski