EU chiefs call for action to prevent euro collapse
ECB chief Mario Draghi said the eurozone was unsustainable in its current form and that an economic union must be completed.
Economics Commissioner Olli Rehn was equally direct in spelling out the need for structures to prevent further financial contagion and cut borrowing costs.
The euro dropped, markets fell dramatically, investors pushed their money into safe havens like German bunds in response to what is seen as the deteriorating shape of the single currency.
However, there was potentially good news for Ireland and Spain in their search for cheap funds to recapitalise banks when Mr Draghi said he was more optimistic that the new EU bailout fund, the ESM, will be used for this purpose.
“They are working on finding ways that the ESM could be used to recapitalise the banks, and whether this could be done directly without having to go through governments,” he said.
The current rules prevent this happening, but once it comes into force in mid-July, the ESM’s board of governors representing each of the member states can decide unanimously to change the rules.
Mr Rehn reflected the growing demand for a combined EU answer to the euro crisis, saying that careful control of finances could not be embedded in the eurozone if the burden was not shared.
“This is the case at least if we want to avoid a disintegration of the eurozone and instead to make the euro survive and succeed, for the sake of its member states and their citizens.”
Despite all the efforts made so far and the solid progress the crisis was not even tamed, never mind overcome, he said.
He conceded that the way the euro was set up did not address the “macro economic imbalances and their impact on the functioning of the economic and monetary union that is now tearing apart the euro.”
Having the politicians agree on the steps towards a full economic and monetary union would help restore confidence in the euro area. A banking union, integrated financial supervision and a single deposit guarantee scheme were needed to ensure the banking system could provide the funds for growth in the single market that was essential, Mr Rehn said. And the map must also lead to eurobonds.
Mr Draghi gave members of the European Parliament a similar message.
“The configuration that we had by and large for 10 years which was considered sustainable… has been shown to be unsustainable unless further steps are taken.”
EU leaders must now set out the path to economic union. “This is the best contribution to growth our leaders can give and will translate into lowering the sovereign spreads and risk aversion in the system,” Mr Draghi said.
German chancellorAngela Merkel said further integration may mean treaty changes. “We are not at that stage today but there are no taboos,” she said when asked about a banking union.
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