European Central Bank president Mario Draghi has thrown his weight behind French president Emmanuel Macron’s call for fiscal transfers between eurozone member states to bolster the long-term future of the single currency.
In an interview with the FT, Mr Draghi said higher government spending was “more urgent than before” to counter the global slowdown. He also said that a long-term commitment to fiscal union was essential for the eurozone to compete with other global powers.
“Given the inherent weakness of national states in a globalised world, what matters is to make the union stronger. In some areas, further integration achieves this goal,” Mr Draghi said, later adding: “To have a stronger EMU [economic and monetary union], we need a common eurozone budget. Clearly the political debate on that still has a long way to go. But I am optimistic.”
Mr Draghi’s intervention — as he prepares to step down after eight years as ECB president at the end of October — is likely to arouse further controversy in Germany and fiscally conservative member states.
The Italian is already facing a backlash after the ECB’s latest monetary stimulus. Nine out of 25 members of his governing council voiced reservations on a package that included a revival of asset purchases under the ECB’s €2.6tn quantitative easing programme and fresh rate cuts — easy-money measures they think will have the dangerous side effect of inflating asset prices.
Mr Draghi said the positive consequences of the stimulus package still outweighed negative consequences such as penalising savers and inflated asset prices in, say, commercial real estate.
But more government support “could greatly help” lower the burden on the central bank. “The extraordinary [monetary] stimulus may have to last a long time if there is no support from fiscal policy.”
European finance ministers agreed to create a common eurozone budget in the spring, but the plans are a much less ambitious version of the fiscal stabilisation tool that Mr Macron had initially pushed.
Business leaders and economists want more stimulus to come from Berlin, but the German government so far remains reluctant to boost spending despite signs that the eurozone’s largest economy is now in recession.
A lack of fiscal spending and regional stabilisation mechanisms have hamstrung the eurozone’s recovery from the 2008 global financial crisis, which was followed by its own sovereign debt crisis.
Several member states in southern Europe and Ireland had to slash costs under a severe austerity drive and, with more prosperous economies such as Germany providing little aid, much of the burden to boost growth fell on the ECB.
The ECB president, who will be succeeded by IMF managing director Christine Lagarde, played down political divisions, saying: “Disagreements about policy happen everywhere, not just in Europe.”
The departing ECB president said he was optimistic that a pact on fiscal policy would happen in the longer term because public attitudes towards economic integration had shifted since the Greek crisis. “Many more people understand the importance of these reforms than a few years ago — there will at some point be a commitment.”
He added: “People have understood the benefits of the single currency, trust is going up. The opponents of the euro have not succeeded.”
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