Top banker faults EU leaders’ vision

The president of the European Central Bank, Mario Draghi, called on Thursday for eurozone leaders to lay out their vision for the future of the embattled bloc, as its current set-up is “unsustainable.”

“The next step ... is basically for our leaders to clarify what is the vision for a certain number of years from now. How is the euro going to look like in a certain number of years from now,” Draghi said in the European Parliament.

“I think the sooner this is specified, the better it is,” Draghi added, speaking in his capacity as head of the European Systemic Risk Board. The ECB cannot “fill the vacuum” left by EU governments in the fields of structural reforms or governance, Draghi insisted.

He compared the troubled eurozone to a swimmer struggling to cross a river in fog. “He or she continues fighting against the current but doesn’t see the other side of the river because it is foggy ... we need to dispel this fog,” he said.

That is the best contribution that countries can make to lowering borrowing costs and bolstering growth in the eurozone, he said.

He said the configuration of the eurozone “has been shown to be unsustainable unless further steps are being undertaken.”

“The financial crisis that started four years ago, four and a half years ago, has changed our risk perception in a substantial way and it has increased, heightened our risk aversion in a dramatic way,” he said.

More austerity

While there has been “renewed bouts of volatility and uncertainty” on the markets recently, the turbulence is “not at the same levels reached in November 2011,” he said.

Meanwhile, European leaders have been challenged to anchor their actions in more austerity if the eurozone is to avoid “disintegration” and “depression”.

With Spain facing imminent financial danger and Greece already tipped to possibly exit the single currency, the EU’s economics commissioner Olli Rehn, yesterday said there are no shortcuts and that budget consolidation, reforms and some public investment hold the keys.

“To be frank, this is the case if we want to avoid a disintegration of the eurozone and if we want it to survive,” Rehn said.
Rehn said that “default or disintegration” would likely cause much greater pain for Europe’s citizens than further unpopular austerity and reforms, as it “would lead to terrible depression in Europe and around the world”.

He said the solution remained “first, by staying the course of fiscal consolidation, second, undertaking structural reforms, and third, by boosting both public and stimulating private investment in order to provide fuel for the growth engine.”

At this “critical” juncture for the euro, Rehn downplayed the merits of eurobonds, or shared sovereign debt.

This pooled approach was pushed heavily by French President Francois Hollande at an EU summit last week, as a way to prevent the huge gulf between the interest rates eurozone strugglers like Spain must pay to borrow, compared to safe-bet German bonds.