By Nick Mann | 30 August 2012
Ensuring the future stability of the euro does not require the creation of full political union between the members of the single currency, the president of the European Central Bank said yesterday.
Mario Draghi said the eurozone crisis had clearly revealed the challenges of having a single monetary policy but loosely co-ordinated fiscal, economic and financial policies.
‘A new architecture for the euro area is desirable to create sustained prosperity for all euro area countries, and especially for Germany,’ he wrote in a piece for German magazine Die Zeit.
‘Many citizens are concerned about where Europe is heading. Yet the solutions presented appear to them unsatisfactory. This is because these solutions offer binary choices: either we must go back to the past, or we must move to a United States of Europe. My answer to the question is: to have a stable euro we do not need to choose between extremes.’
Draghi explained that, to continue to prosper, Germany needed to be the anchor of a strong currency, sitting at the centre of a zone of monetary stability and in a ‘dynamic and competitive’ eurozone economy that could be provided only by stronger economic and monetary union.
But he stressed that this did not require a political union first. ‘It is clear that monetary union does entail a higher degree of joint decision-making,’ he acknowledged. ‘But economic integration and political integration can develop in parallel. Where necessary, sovereignty in selected economic policy fields can and should be pooled and democratic legitimation deepened.’
According to Draghi, the minimum requirements for complete economic and monetary union include ‘true oversight’ over national budgets.
‘The consequences of misguided fiscal policies in a monetary union are too severe to remain self-policed. For broader economic policies, we need to guarantee competitiveness. Countries must be able to generate sustainable growth and high employment without excessive imbalances,’ he said.
‘The euro area is not a nation-state where persistent cross-regional subsidies have sufficient popular support. Therefore we cannot afford a situation where some regions run permanently large deficits vis-à-vis others.’
This should be accompanied, he said, by centralising powers to limit excessive risk-taking by banks and ensuring regulatory oversight by supervisors.
The challenge for political union is to further increase the legitimacy of the European Council and Parliament at the same time as increasing their responsibilities, as well as finding ways to better ‘anchor’ European processes at a national level.
‘A more solid political foundation should allow for agreement on a basic principle: that it is neither sustainable nor legitimate for countries to pursue national policies that can cause economic harm for others,’ Draghi said.
‘This constraint has to be built into how countries design their economic and social models. The only sustainable model is one that is consistent with the terms of a common currency. Countries have to live within their means.’
COMMENTS
Submitted By: Warren Park
Submited On: 04/09/2012 16:38:48
Comment: The German tanks have been marching across Europe for 20 years hiding behind the competitive advantage of the Euro - a devalued currency to them. Now they own Greece and can soon lay claim to Spain and Portugal.
