FLORENCE • European Central Bank (ECB) president Mario Draghi (picture) stepped up his call for a euro-area fund to make sure countries don’t drift apart in future crises.
“We need an additional fiscal instrument to maintain convergence during large shocks, without having to overburden monetary policy,” he said last Friday at a European Union (EU) event in Florence, Italy. “Its aim would be to provide an extra layer of stabilisation, thereby reinforcing confidence in national policies.”
While the ECB and EU leaders have long acknowledged that the euro-area needs some kind of joint fiscal capacity to bolster the economic and monetary union, Draghi’s comments signal rising concern about a lack of progress.
A summit of EU heads next month to decide whether and how to strengthen the region’s institutions looks likely to fall well short of reforms proposed by French President Emmanuel Macron.
The differences of opinion between Germany and France, the region’s two biggest economies, are threatening to stall initiatives such as a common deposit insurance scheme and unified rules for capital markets.
Speaking in the German city of Aachen, last Thursday, Macron urged German Chancellor Angela Merkel — who was in the audience — to drop her country’s “perpetual fetish” about budget surpluses.
Draghi told political leaders to move beyond arguments which have tended to contrast risk sharing — in which stronger countries help support weaker members — with risk reduction.
The latter is often seen as a code for demanding that southern nations put their house in order before integration is deepened.
“The dichotomy between risk reduction and risk sharing that characterises the debate today is, in many ways, artificial,” he said. “With the right policy framework, these two goals are mutually reinforcing.”
The ECB president skirted talking in detail about monetary policy, nor did he address the political strife his homeland is undergoing as it tries to establish a new government.
He did reaffirm his conviction that the region has almost shaken off the hangover of its double-dip recession, while warning the job isn’t over yet.
The euro has gained about 10% against the dollar in the past year as the economy strengthened.
“A decade after the great financial crisis, the euro-area looks set to exit more resilient than it entered it,” Draghi said. “But we know that our monetary union is not complete.
The crisis revealed some specific fragilities in the euro-area’s construction that so far have not been resolved.”