By Marta Vilar – GENEVA, Switzerland (Econostream) – European Central Bank Governing Council member José Luis Escrivá said on Tuesday that financial markets' pricing of fiscal risks in France should be viewed as a positive development that could encourage governments to put their public finances on a more sustainable footing.

“Certainly there are sustainability issues in fiscal finances not only in France but in quite a number of other European countries, to different degrees,” Escrivá said at the International Center for Monetary and Banking Studies.

“I think we should see positively the fact that markets are pricing in this risk,” he said, arguing that the widening of sovereign bond spreads should be regarded as a "healthy" development.

Escrivá recalled that during the euro area’s sovereign debt crisis, widening sovereign bond spreads and credit rating downgrades had helped prompt fiscal adjustments in countries such as Austria and Belgium.

“We have experiences and examples from the past that this really has finally given rise to action and to correction at the national level in order to make fiscal positions sustainable,” he said.

“In that respect, I'm not so downbeat,” he added.

Escrivá acknowledged that fiscal space varied considerably across euro area countries, with some governments lacking room for additional spending while others were able to make use of their fiscal capacity.

He argued, however, that Europe needed to focus less on increasing public expenditure and more on stimulating private investment.

“What we need far more than fiscal or public expenditure is unlocking private investment,” he said.

He suggested that targeted fiscal incentives, public procurement and competition policies could help encourage investment without imposing substantial additional costs on public finances.

“There are a number of policies that could help to basically bring about a private investment boom, which is badly needed because the opportunities are there,” he said.

In his earlier speech, Escrivá warned that Europe's economic and social model could come under severe strain from demographic decline unless the continent achieved substantial productivity gains or addressed its migration challenges.

He also urged European policymakers to reduce regulatory fragmentation, highlighting the proposed 28th regime as a potentially important instrument for facilitating investment and business expansion across the single market.

Escrivá argued that European countries should not wait for comprehensive EU-wide reforms before implementing measures to strengthen competitiveness.

“Just waiting for the European response is a little paralyzing sometimes,” he said.