Brussels, 31/05/2012 (Agence Europe) - On Thursday 31 May, the ECB president, Mario Draghi, urged the leaders of the eurozone to fine-tune their vision of the future of EMU (economic and monetary union) and called for a banking union with centralised financial supervision, EU bank crisis management rules and an EU bank bailout fund. The timing is apposite because a few days ago, the European summit started looking at how to boost the economic arm of EMU (see EUROPE 10619) and on Wednesday 6 June, the European Commission will be unveiling draft legislation on dealing with bank crises.
“What will the euro look like in the future?” asked Draghi, speaking as head of the European Systemic Risk Board (ESRB) to the European Parliament's economic and monetary affairs committee. He said that in addition to spending cuts and structural reforms, the eurozone should set out its vision for the next few years, and the sooner it does so the better, on the grounds that it is not the job of the ESRB to fill the vacuum created by eurozone countries not doing enough to ensure a stable single currency.
Draghi talked about several countries (not mentioning Spain or Italy) which are facing an uphill battle to reform their economies, but cannot see the end of the tunnel because it is concealed by fog. He said he was calling for the fog to be lifted, because the battle is still going on. He compared EMU's current situation to that after the 1992 Danish referendum rejecting the Maastricht Treaty, which had threatened monetary union, and said we were at the same juncture today.
Banking union. Draghi said that achieving banking union in the eurozone would be a way of fleshing out the leaders' vision for the future of the euro. He said a banking union should take a three-pronged approach - a guarantee system to ensure that basic banking services continue when banks are in difficulty (bank deposits, for example), regulations to bail out cross-border banks, and greater centralisation of bank supervision. Asked about Dexia and Bankia, Draghi urged governments to stop underestimating the cost of bailing out banks, pointing out that this was the general reaction and the worst way to deal with the situation.
Asked whether the European Stability Mechanism, which is due to come on-stream in July, should be allowed to provide direct aid to banks, Draghi said there was the danger that if the rules were not changed, then there would be a big common pot of money that nobody can get at. (MB/transl.fl)