Euro area budget no 'bazooka' but will expand bloc's policy toolkit: Centeno

LONDON (Reuters) - A future euro area budget will complement monetary policy, adding a new instrument to the bloc's toolkit, the chairman of euro zone finance ministers Mario Centeno said on Tuesday, according to the text of a prepared speech.

European policymakers have so far given few details about the size of such a budget, where it will come from and what the money should be spent on.

"It will not start as a bazooka, but over time we will be able to adjust it to our needs as it proves its merits," Eurogroup head Centeno was due to tell an audience at the London Business School.

He also said a common European deposit insurance system was an "essential" piece of a European monetary union.

"It will provide the system with a confidence boost, preventing bank runs," he said, adding: "That the discussion is now at a political level is a signal of confidence."

Centeno reiterated his previous stance that the euro must raise its profile internationally, saying recent developments have raised questions about the U.S. dollar's dominance.

"Washington is openly using the dollar as a tool to complement economic sanctions. Central bank independence is under strain," he said.

In the face of rising protectionism and populism, Centeno said the single currency would provide Europe with a way to shape the world financial order.

"If we want to continue to have a say... the euro is our best and only shot," he said.

(Reporting by Helen Reid, Abhinav Ramnarayan, and Jan Strupczewski; Editing by Gareth Jones)