Europe Needs More Integration To Solve Problems

TradingCharts:  -- ECB Vice President Constancio says more fiscal union necessary

-- Says Europe not heading to a "United States"

-- Sees future inflation expectations as "well anchored"

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By Kelly Olsen
   Of DOW JONES NEWSWIRES

TOKYO (Dow Jones)--European Central Bank Vice President Vitor Constancio said Monday the bank needs to continue its unconventional monetary policies and that inflation won't be a concern for years to come.

He also said Europe needs more fiscal integration but is "not heading to a United States of Europe."

"A bigger dose of fiscal union is certainly necessary for a monetary union to work effectively," Constancio said at an event sponsored by the Institute of Regulation & Risk, North Asia. "To address the overall problem, we need deeper integration in Europe, a certain amount of integration."

Europe is putting into place a new treaty aimed at ensuring stability of the euro currency system. It seeks to do this by introducing common rules on budgetary discipline, coordination of economic policies and the system of governance.

But Greek voters rejected the strict application of these principles last month's elections, raising fears the country may renege on its bailout and have to leave the euro zone. A new vote is set for next month after the collapse of talks to form a government.

Meanwhile, Ireland, another bailout recipient, is holding a referendum on the fiscal pact this month.

On inflation risks, Constancio said there has been no change.

"Inflation expectations for the next 10 years are well anchored near 2%," he said.

He also said that the ECB will one day exit from its unorthodox monetary policies but "not now, certainly." Those policies include two rounds of cheap, unlimited lending to banks, many of which have used the funding to buy the bonds of cash-strapped euro-zone governments.