Eurozone countries could start to consider leaving the currency union if prosperity does not spread across the area, European Central Bank boss Mario Draghi said yesterday.
If countries such as Greece remain permanently less competitive than those like Finland, with higher unemployment and lower growth, “this threatens the essential cohesion of the union”, he said.
Draghi said more needed to be done to make sure the euro works for every country in the union.
And he wants closer political and fiscal ties to make sure it can survive future crisis together.
“If there are parts of the Eurozone that are worse off inside the union, doubts may grow about whether they might ultimately have to leave,” Draghi told an audience at the University of Helsinki.
“The euro is – and has to be – irrevocable in all its member states, not just because the treaties say so, but because without this there cannot be a truly single money.”
It would help if countries were prepared to transfer more money from rich areas to poorer countries, he said, but if this is not possible then countries need to work on shock-absorbing mechanisms.
“Some form of cross-country risk-sharing is essential to help reduce adjustment costs for those countries and prevent recessions from leaving deep and permanent scars,” he said.
Governments needed lower and more sustainable debt levels so they could increase borrowing in downturns, he said, rather than cut back.
And he called for private investors and finance firms to spread their money more broadly across the Eurozone, distributing risk across the countries.