The final details towards allowing this fiscal union are being sculpted at the moment in preparation for next Friday’s EU summit, preceded by a eurozone summit on Thursday evening.
Markets reacted positively to the signals Mr Draghi gave to the European Parliament in Brussels, while Spain, Italy and France all had successful, if expensive, auctions of sovereign debt.
Mr Draghi has insisted that the politicians must forge their own plan for rescuing the euro and has flatly refused to answer the call of many member states, including Ireland, and take additional measures.
He told MEPs that the agreements between member states on the “six pack” regulations, the European Semester, the Euro Plus Pact have set the stage for closer co-ordination and more intensive scrutiny of economic policies in the EU, particularly the euro area.
These and the changes made in the more exposed countries and the tighter surveillance that have not yet had an effect on the financial markets will restore confidence over time and that countries are on the right track.
“But a credible signal is needed to give ultimate assurance over the short-term. What I believe our economic and monetary union needs is a new fiscal compact — a fundamental restatement of the fiscal rules together with the mutual fiscal commitments that euro area governments have made”, he said.
This fiscal compact would enshrine the essence of fiscal rules and the government commitments taken so far and would be “the most important signal from euro area governments for embarking on a path of comprehensive deepening of economic integration. It would also present a clear trajectory for the future evolution of the euro area, thus framing expectations”.
He was luke-warm on Treaty change saying the EU should keep its options open on the precise legal process bringing about a genuine economic union. “Far-reaching Treaty changes should not be discarded, but faster processes are also conceivable”.
It was time to adapt the euro area design with a set of institutions, rules and processes commensurate with the requirements of monetary union he said, adding that Europe’s citizens expect policymakers to act decisively to resolve the crisis.
The ECB is expected to further cut interest rates next Thursday and announce longer-term cheap liquidity with easier collateral rules for banks — something the Irish Government has been pressing for as it says the current day-to-day arrangement does not engender confidence.
During the debate in the Parliament many MEPs called for a rethink of the ECB’s role in the short term to operate as the lender of last resort. “Natural justice must precede written law”, said Fine Gael’s MEP Gay Mitchel.