European Central Bank president Mario Draghi urged eurozone leaders Monday to create a common budget of “some significance”, adding such a tool could have hastened recovery from the financial crisis.
“We have to have a fiscal policy of some significance in the eurozone,” said Draghi in an interview with the Financial Times.
He said the eurozone needed to move “from a rules-based national fiscal policy to an institution-based fiscal capacity,” adding this was “an existential part of the euro area that needs to be completed”.
While a central budget might inflame tensions over national sovereignty, “what matters is to make the union stronger” to better cope with a globalised world, he added.
The Italian central banker will depart next month from the post he has held for eight years, credited with saving the euro single currency with a promise to do “whatever it takes” to preserve it in 2012.
But he hands over to former IMF chief Christine Lagarde under a cloud.
Years of massive central bank interventions in the economy have failed to boost inflation to the ECB target of just below two percent.
Without a central budget, or at least more support from national governments, monetary policy can only work “more slowly and with more side effects,” Draghi said.
“A combination of monetary and fiscal policies might have delivered similar results on growth and inflation, but faster and at a higher level of interest rates.”
Some in well-off northern European countries resent Draghi for years of low rates that have made financial firms’ business more difficult and eaten into savers’ nest eggs.
And they believe the ECB’S 2.6 trillion euros ($2.8 trillion) of “quantitative easing” (QE) bond purchases between 2015 and 2018 — restarted at a pace of 20 billion euros per month from November 1 — have undermined government discipline on limiting borrowing.
This month’s decision to renew bond-buying prompted Bundesbank (German central bank) chief Jens Weidmann and others to publicly state their opposition.
German ECB board member Sabine Lautenschlaeger went a step further by resigning.
Nevertheless, Draghi told the FT Monday that “we can do more” with monetary policy.
The statement “is the usual way to make the recent decisions more credible,” Pictet Wealth Management strategist Frederik Ducrozet told AFP.
But given opposition on the ECB’s governing council to more ample support, Draghi’s words may in fact be “aimed at moving political lines towards fiscal easing,” he added.
In the eurozone’s largest economy Germany, Chancellor Angela Merkel’s coalition government budget clung to a widely-criticised no-new-debt policy in its 2020 budget presented earlier this month.
But Merkel herself said last week that politicians shouldn’t “overstretch” the ECB by leaving it to fight slowing growth and inflation alone.
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