European Central Bank President Jean-Claude Trichet saidgovernments should consider setting up a finance ministry for the17-nation euro region as the bloc struggles to contain aregion-wide sovereign debt crisis.

“Would it be too bold, in the economic field, with a singlemarket, a single currency and a single central bank, to envisage aministry of finance of the union?” Trichet said in a speech todayin Aachen, Germany. He also favors giving the European Union powersto veto the budget measures of countries that go “harmfullyastray,” though that would require a change to EU Treaties.

Trichet, one of the architects of the Maastricht Treaty thatfounded the euro, is setting out his vision for how the currencycan be better managed just months before he retires and as Europeanofficials rush to put together a second bailout plan for Greece.Last year's 110 billion-euro ($159 billion) rescue failed toprevent an investor exodus from Greece, which has been saddled withEurope's highest debt load amid a three-year economic slump.

Ireland and Portugal also had to ask for European aid asborrowing costs soared on concern the countries wouldn't be able totame their budget deficits.

Ministry Functions

German government bonds fell after the remarks before regainingground. The 10-year yield was little changed at 2.99 percent as of12:44 p.m. in London. Greek two-year notes erased a decline toleave the yield little changed at 24.54 percent. The euro rose morethan a quarter cent to as high as $1.4486.

Trichet, who has no formal power over government decisionmaking, hasn't said what he plans to do when he leaves the ECB atthe end of October. He said today that while any single financeministry would “not necessarily” administer “a large federalbudget,” it would “exert direct responsibilities in at least threedomains.”

These would include “first, the surveillance of both fiscalpolicies and competitiveness policies” and “directresponsibilities” for countries in fiscal distress, he said.

It would also carry out “all the typical responsibilities of theexecutive branches as regards the union's integrated financialsector, so as to accompany the full integration of financialservices, and third, the representation of the union confederationin international financial institutions.”

Europe's Paymasters

“Germany and France as the paymasters of Europe are unlikely togo with this proposal,” said Tobias Blattner, a former ECBeconomist who now works with Daiwa Capital Markets Europe inLondon. “While the ECB has been pushing for closer fiscalintegration throughout the crisis, Trichet's proposals stop shortof making this a proper treasury as he's not mentioning enablingthis institution to issue common bonds and it won't have abudget.”

Trichet said that any new form of fiscal governance would needto be “decided by the people of Europe” and that the EU president,the European Commission and the German finance ministry are sure tohave their own views. Calls to the German finance ministry forcomments on Trichet's proposals were not immediately returned.Officials at the French finance ministry declined to comment.

The absence of a European Treasury has drawn criticism in thepast, including from billionaire investor George Soros who said asfar back as 2009, before the sovereign-debt crisis erupted, thatthe lack of a common European fiscal authority is among the “issuesthat need to be confronted.”

Ad Hoc Plans

Dealing with the crisis on an “ad hoc basis looks pretty muchplayed out now,” Niall Ferguson, a history professor at HarvardUniversity, said in an interview with Deirdre Bolton and ErikSchatzker on Bloomberg Television's “Inside Track.” “People's mindsare turning to the idea of some kind of permanent fiscal control.Nobody should pretend otherwise.”

Trichet has on many occasions voiced his frustrations atEurope's finance ministers' handling of the crisis, whicheffectively left the ECB to shoulder the main burden by buyingdistressed government bonds in the secondary market and supportEurope's economy by slashing interest rates to a record low.

The ECB is now one of the main holders of Greek government debtand, along with European lawmakers, may ask investors to reinvestin new debt when existing bonds mature, said two officials familiarwith the situation.

Trichet signaled the current situation is not ideal. Whilefinancial aid is “justified” for any troubled country “in thecontext of a strong” adjustment program, “if a country is still notdelivering, I think all would agree that the second stage has to bedifferent,” he said.

In this second stage, European authorities could take decisions“applicable in the economy concerned,” he said, adding that thiscould include the “right to veto some national economic policydecisions.”

Bloomberg News