Euro treaty needs updating, says ECB's Bini Smaghi

The euro currency treaty needs updating to take account of the financial crisis, European Central Bank (ECB) Executive Board member Lorenzo Bini Smaghi said in an interview on Sunday.
 

Possible changes to the Maastricht Treaty include lowering the budget deficit limit of 3% of gross domestic product (GDP), he told La Stampa daily.                                            

"The public deficit limit established by the Maastricht Treaty, 3% of GDP, was calibrated on average economic growth of 3% a year. In the outlook for coming years the euro area can reach growth of about half that. So that figure needs to be changed," he said.

"The 3% limit gets lowered. The accounts should tend to be balanced."                                           

He added that serious European budget tightening would begin in 2011.                                           

Bini Smaghi said each euro zone country should "internalise" changes on its own.                                           
 

"Otherwise leaders will have the easy way out of saying, ''We're cutting the budget because Europe is making us'', and Europe will become even more unpopular with its citizens."                    

Asked if the euro was out of danger, he said: "The euro was never in danger. The people who were betting against it are seeing it in their own accounts, they are losing a lot of money."                   

Bini Smaghi said: "The euro was not and is not the problem. It was the economic policies of some countries. Their behaviour was not in line with participation in the single currency."         

He said Germany's economy, the biggest in the euro zone, could grow more by liberalising its services sector than by increasing public spending.                                            

Bini Smaghi said aid to euro zone countries in trouble had not been a burden to Germany.                                           
 

"But we need to be ready for temporary aid that allows a country in trouble to get on its feet. And in future we must have rules, as much as possible automatic, that allow divergent policies to be blocked.                                           

"That is why the ECB is calling to strengthen the proposals by EU president Herman Van Rampuy to modify the (euro zone) stability pact."