Brussels, 19/12/2011 (Agence Europe) - The president of the European Central Bank, Mario Draghi, warned in an interview in the Financial Times on Monday 19 December of the cost and dangers of disintegration of the eurozone. Unlike his predecessor, who always refused to even countenance such a possibility, Draghi does not rule it out but says that the ECB buying up state debt is not a miracle solution to the crisis because countries themselves have to act first and is the only practical way of restoring confidence among ordinary people and investors, rather than destroying the ECB's credibility.
Draghi says that struggling countries that leave the eurozone would face the worst possible scenario by devaluing their currency; they would cause massive inflation while being forced to introduce structural reforms from a position of huge weakness.
In order to tackle the crisis, the ECB president says that unprecedented measures are needed, like the ECB's support for eurozone banks in the form this week, for example, of unlimited three-year loans. This is intended to be lent on to the real economy to relieve pressure on small and medium-sized banks (the ones that provide the bulk of finance to small business). Small business provides 70% of private sector jobs in the eurozone. Draghi is at pains, however, to minimise the ECB's role, saying that in prime of place, it is for eurozone governments to take the lead by introducing budget discipline and making the European Financial Stability Fund (EFSF) fully operational. This would enable the ECB to intervene as the EFSF's agent in financial market operations from January 2012 onwards, said Draghi, hoping to see the EFSF's lending capacity increased in March next year.
Asked what would happen to the ECB's Securities Markets Programme (for buying up eurozone sovereign debt, which has bought more than €200bn since May 2010) when the EFSF's firewall is introduced on 1 January 2012, Draghi took a cautious line, saying that the Securities Markets Programme would be justified as long as the normal channels for ensuring that monetary policy decision-making fed through to the real economy, but pointed out that the EU treaty did not allow the ECB to finance countries directly. Nation states needed to introduce budget discipline and structural reforms, he added. Addressing MEPs on Monday 19 December, Draghi said that the EU treaty specified that the ECB's job was to ensure price stability, not allowing it to provide cash. He said the ECB was anxious to stick to the treaty rules in order to preserve its credibility. He added that he had no doubts about the strength of the euro and the fact it was here to stay. (FG/transl.fl)