PARIS ? 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. Some have argued this would help weaker countries borrow more easily because they wouldn't have to pay such high interest rates, which in turn make their debts bigger. But stable countries like Germany would likely see their rates rise.
Instead, Draghi suggested the eurozone should adopt rules that would require more budget discipline. There is already a proposal that would require all eurozone countries to balance their budgets. Profligate spending during boom times funded by cheap debt is one of the root causes of the current crisis.
Market tensions increased on Monday in Europe, both due to worries about some countries debt problems and a global financial sell-off triggered by concerns 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 the spread, spiraled to new records on Monday, topping 17.3 percentage points. Yields on the Greek bonds were above 18 percent.
High yields means borrowing is more expensive for Greece, making it even harder to reduce its debt load.
In fact, its yields are so high that 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 because it would be too expensive to rescue for the eurozone. In an effort to steady the yields, the ECB has been buying Italian and Spanish bonds in recent weeks, driving down the interest rates.
Draghi indicated that such makeshift measures would continue, including making sure the European Financial Stability Facility ? the eurozone's bailout fund ? takes over the bond purchases and has enough cash in it.
But, he added, that's not a permanent solution.
"The crisis starts from the incompleteness of the European construction," he said, and important reforms need to be made to solve it. "Overall, the aim of this effort should be a quantum step up in European economic integration."
Draghi's remarks echoed those made by his predecessor, the current ECB chief, who spoke at the same conference.
Trichet said 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.
He 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.
New legislation that would give budget rules more teeth has been floundering for months as the European Parliament and EU member states have failed to agree on more automatic sanctions.
Trichet called Monday for those rules to be strengthened further. He has said in the past that even the new legislation is not strong enough for the 17 euro countries, since states could still override penalties for overspenders.
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Elena Becatoros in Athens and Gabriele Steinhauser in Brussels contributed to this report.
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