THE EUROZONE’S governments will need to give more powers to Brussels and cooperate far more closely on taxes, spending and financial regulation, European Central Bank (ECB) boss Mario Draghi said yesterday, urging leaders to act quickly to stamp out doubts over the union’s future.
“Can the ECB fill the vacuum of lack of action by national governments on fiscal growth? The answer is no,” Draghi told the European Parliament.
Instead, he argued, it is down to national governments to answer the questions troubling investors and leading to chaos in Europe’s markets.
“How is the euro going to look like a certain number of years from now? The sooner this is specified, the better it is,” Draghi said.
In his role as chair of the European Systemic Risk Board (ESRB), Draghi called for greater centralisation of financial controls, saying national and European financial regulators must act “in unison, with speed and a total commitment to financial stability.”
Draghi believes a three pillared “banking union” as ECB policymakers have called it, would carry an important message that the bloc was united in support of its lenders, regardless of which country they are in, and that it would represent a symbolic first step towards closer fiscal ties.
His demands for a solution to the crisis, and for controls to prevent a similar situation arising again, came as credit ratings agency Fitch issued a report detailing the possible consequences of a Eurozone break-up.
The widespread redenomination of debut would cause defaults on private and sovereign euro-denominated obligations, “imposition of capital controls and severe economic and financial dislocation,” Fitch said.
New currencies would plummet, the report warned – Greece’s to 57 per cent of its current value against Germany, for example.
These events would have major knock-on effects, said Fitch, including “recession, inflation, lack of credit, bank deposit restrictions and potential social and political instability.”