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New euro fiscal authority sought

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MADRID: Spain, the latest combat zone in Europe’s long-running debt wars, urged the eurozone to set up a new fiscal authority to manage the bloc’s finances and send a clear signal to markets that the single currency project is irreversib­le.

Prime Minister Mariano Rajoy said the authority would also go a long way to alleviatin­g Spain’s woes which, along with the prospect of a Greek euro exit, had threatened to derail the single currency project.

It is not the first time a European leader has proposed creating such an authority but the problems and the size of Spain – a country deemed too big to fail – have prompted European Union (EU) policymake­rs to hurriedly consider measures such as creating a fiscal and banking union ahead of a EU summit on June 2829.

Germany, the paymaster of the eurozone, and others insist such a move can only happen as part of a drive to much closer fiscal union and relinquish­ing of national sovereignt­y.

Overspendi­ng in the regions and troubles with a banking sector badly hit by a property crash four years ago have sent Spain’s borrowing costs to record highs and pushed the country closer to seeking an internatio­nal bailout.

The risk premium investors demand to hold Spanish 10-year debt rather than German bonds rose to its highest since the launch of the euro – 548 basis points – on Friday.

The Spanish government, which has hiked taxes, slashed spending, cut social benefits and bailed out troubled banks, argues that there is little else it can do and the EU should now act to ease the country’s liquidity concerns.

In private, senior Spanish officials had said this could be done by using European money to recapitali­se directly ailing banks or through a direct interventi­on of the European Central Bank (ECB) on the bond market.

They have also said the eurozone should quickly move towards a fiscal

Spain calls for body to manage the bloc’s finances

union to complete its 13-year monetary union but Rajoy went a step further by making a formal offer.

“The European Union needs to reinforce its architectu­re,” Rajoy said at an event in Sitges, in the northeaste­rn province of Catalonia. “This entails moving towards more integratio­n, transferri­ng more sovereignt­y, especially in the fiscal field.

“And this means a compromise to create a new European fiscal authority which would guide the fiscal policy in the eurozone, harmonies the fiscal policy of member states and enable a centralise­d control of (public) finances,” he added.

He also said the authority would be in charge of managing European debts and should be constitute­d by countries of the eurozone meeting strict conditions.

Last week, ECB president Mario Draghi said EU leaders should break away from the incrementa­l approach that had failed to get ahead of the eurozone debt crisis for more than two years and quickly clarify their vision for the future of the currency.

Adding to growing pressure for dramatic policy action at this month EU leaders’ summit, he warned that the ECB could not fill the policy vacuum.

Establishi­ng a new authority could require a change in the EU treaties, a usually lengthy and politicall­y painful process which requires ratificati­on in all 27 member states of the bloc.

A spokesman for Olli Rehn, the EU commission­er in charge of economic and monetary affairs, said draft legislatio­n designed to step up financial discipline in the eurozone, would create such a fiscal authority by granting new powers to the EU’s executive.

“This would grant enhanced powers to the European Commission on fiscal surveillan­ce, including allowing the sanctionin­g of countries,” said Amadeu Altafaj.

“Even before a budget is drafted and reaches the national parliament, the Commission could ask for a revision of the budgetary plans if it considers this would not allow a country to meet its fiscal commitment­s, and thereby could endanger financial stability.”

Germany had said further integratio­n in Europe was required, including additional controls on national public finances, and was ready to consider revising the treaties if needed.

A day after Berlin supported giving Spain an extra year to cut its deficit down to the 3% of gross doemstic product threshold, Chancellor Angela Merkel said it should be possible for countries that violate fiscal rules to be sued in the European Court of Justice.

The idea is already part of a new “fiscal compact” signed by 25 EU states and which is due to come into force next year. — Reuters BANGALORE: JPMorgan Chase & Co has returned about US$600mil that was at the bank when MF Global Holdings Ltd went bust in October, the Wall Street Journal reported citing people familiar with the matter.

MG Global’s bankruptcy trustee James Giddens might have additional claims against JPMorgan for several hundred million dollars, the business daily said on Friday.

JPMorgan officials contended that the bank no longer holds any MF Global money, the Journal said citing the people. — Reuters

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