EU reforms urgent despite market calm: ECB board member

(BERLIN) - Reforms to restore economic stability in the European Union remain urgent despite a calming of the turmoil on financial markets, European Central Bank executive board member Joerg Asmussen said.

"Putting in place a genuine financial union and a stronger economic union must be our key priorities for 2013," he said in a speech late on Tuesday under a media embargo until Wednesday.

"It is essential that the appearance of calm on financial markets does not distract from the urgent need to address the euro area's fundamental challenges."

Asmussen called for the bloc to press ahead with its planned fiscal compact committing member states to greater budgetary discipline and with implementing reforms to the EU's stability and growth pact, calling them "essential to strengthen the fiscal framework".

"We should not undermine this by re-opening discussions on what constitutes 'good' and 'bad' deficits by arguing for exemptions for public investment," he said.

"All deficits have to be financed on financial markets and increases public debt stocks -- and this is the opposite of what we need next year."

He said he wished an EU summit in Brussels this month had been "more ambitious" but insisted: "these ideas are not criticism of it."

Asmussen noted that the EU still had work to do to restore the lasting confidence of financial markets so they would not be spooked by each new development.

"It is instructive to notice how little markets are reacting to the 'fiscal cliff' debate in the US while they are jolted by the prospect of earlier than planned elections in Italy," he said.

"Our long term goal is a situation where the essential functioning of the euro area is unaffected by events in individual countries because sovereignty is shared and exercised in strong common institutions -- and those institutions have a longer time horizon than politics."

Europe's leaders gathered in Brussels last week for their seventh and final summit of a crisis-hit year, trumpeting deals to save Greece and monitor banks but delaying ambitious proposals for further EU integration.

On Wednesday, credit rating agency Fitch warned that eurozone authorities could become complacent given that market pressures over the debt crisis were showing signs of easing.