PARIS (AP) — The eurozone needs a "quantum" leap toward economic integration, the incoming chief of the European Central Bank said Monday, as the bond yields of countries with shaky finances, like Greece and Italy, jumped amid increased investor tensions.
Mario Draghi told a conference in Paris that among the common currency's problems is a lack of coordinated fiscal policies and that the solution was more integration.
He dismissed the idea of eurobonds — debt issued jointly by the eurozone countries.
Instead, he suggested the eurozone should adopt rules that would require more budget discpline. There is already a proposal that would require all eurozone countries to balance their budgets.
Market tensions have increased in Europe due a mixture of doubts about the future of some countries to fix their debt problems and a global financial sell-off triggered by worries that the U.S. economy may slip back into recession.
The difference in interest rates between the Greek and benchmark German 10-year bonds, known as spreads, spiralled to new records, topping 17.3 percentage points in the early afternoon on Monday. Yields on the Greek bonds were above 18 percent.
Greece has been relying since last year on funds from a euro110 billion ($157 billion) package of bailout loans from other European Union countries and the International Monetary Fund. On July 21, European leaders agreed on a second bailout, worth an additional euro109 billion.
Italy's own 10-year bond yields jumped to 5.45 percent amid signs that the government in Rome is wavering in its commitment to enforce its austerity program.
ECB chief Jean-Claude Trichet in recent days has called on Silvio Berlusconi's government to push through with the deficit-cutting measures promised in August. Italy's stability is of particular concern to traders because it would be too expensive to rescue for the eurozone bailout fund.
Trichet said Monday that the debt crisis had revealed the weaknesses of the eurozone and that one solution would be to eventually create a central finance ministry for the continent.
Speaking at the same conference as Draghi, Trichet noted that one of the hallmarks of the crisis has been that while the eurozone economies are linked by their common currency, each country creates its own budget. That will need to change, he said.
"In the future, we can imagine a confederation ... with a minister of finance with responsibilities including the regulation of the solvency of the eurozone," he said.
In the heyday of the boom, several European countries allowed their budgets to run larger deficits than the rules allowed. Countries like Greece and Portugal eventually came close to bankruptcy and were saved only by international rescue packages.
Now their debts are threatening the entire eurozone, with the large countries forced to bail them out.
Elena Becatoros in Athens contributed to this report.