Ministry Functions

German government bonds fell after the remarks before regaining ground. The 10-year yield was little changed at 2.99 percent as of 12:44 p.m. in London. Greek two-year notes erased a decline to leave the yield little changed at 24.54 percent. The euro rose more than a quarter cent to as high as $1.4486.

Trichet, who has no formal power over government decision making, hasn't said what he plans to do when he leaves the ECB at the end of October. He said today that while any single finance ministry would “not necessarily” administer “a large federal budget,” it would “exert direct responsibilities in at least three domains.”

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

It would also carry out “all the typical responsibilities of the executive branches as regards the union's integrated financial sector, so as to accompany the full integration of financial services, and third, the representation of the union confederation in international financial institutions.”

Europe's Paymasters

“Germany and France as the paymasters of Europe are unlikely to go with this proposal,” said Tobias Blattner, a former ECB economist who now works with Daiwa Capital Markets Europe in London. “While the ECB has been pushing for closer fiscal integration throughout the crisis, Trichet's proposals stop short of making this a proper treasury as he's not mentioning enabling this institution to issue common bonds and it won't have a budget.”

Trichet said that any new form of fiscal governance would need to be “decided by the people of Europe” and that the EU president, the European Commission and the German finance ministry are sure to have their own views. Calls to the German finance ministry for comments 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 the past, including from billionaire investor George Soros who said as far back as 2009, before the sovereign-debt crisis erupted, that the lack of a common European fiscal authority is among the “issues that need to be confronted.”

Ad Hoc Plans

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

Trichet has on many occasions voiced his frustrations at Europe's finance ministers' handling of the crisis, which effectively left the ECB to shoulder the main burden by buying distressed government bonds in the secondary market and support Europe's economy by slashing interest rates to a record low.

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

Trichet signaled the current situation is not ideal. While financial aid is “justified” for any troubled country “in the context of a strong” adjustment program, “if a country is still not delivering, I think all would agree that the second stage has to be different,” he said.

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

Bloomberg News