In his thirtieth and final appearance before the European Parliament's Committee on Economic and Monetary Affairs, the outgoing President of the European Central Bank (ECB), Mario Draghi, reiterated on Monday 23 September his call to the 19 euro-area countries to consolidate Economic and Monetary Union (EMU) by equipping it with the fiscal capacity to cope with macroeconomic shocks.
“There is no single monetary union with no fiscal policy”, said Mario Draghi, leaving Parliament after 8 years of a term in which the ECB has helped to preserve the integrity of the euro area without fully respecting its mandate to ensure price stability in the medium term at a level close to, but below, 2%.
“Ignoring the need to address the institutional weaknesses of the EMU would seriously damage what has already been achieved”, Mr Draghi said, urging the Nineteen and the European Parliament to “set a clear course” to finalise this union, as he had already said 8 years ago.
To Luis Garicano (Renew Europe, Spain), who asked him about the immediate decisions needed to make progress in this area, the President of the Frankfurt Institute said that the easiest way was to strengthen the “capital markets union”. Other instruments, such as the creation of a European Deposit Insurance Scheme (EDIS), the issuance of sovereign bond-backed securities (SBBS) or the establishment of an unemployment insurance scheme should be considered in the medium to long term.
Above all, Mr Draghi considered it “fundamental to tackle a weakness in the Eurozone” characterised by the lack of fiscal capacity. Asked about this point by Antonio Marina Rinaldi (ID, Italy), he considered that any budget for the euro area should include a stabilisation function, be of an “adequate size to be credible” and be mobilisable “in an almost automatic way”.
On Wednesday 9 October in Luxembourg, the Eurogroup will try to reach a final agreement on the outlines of the future euro-area budget, which should essentially serve to stimulate investment and competitiveness in the event of a serious economic downturn (see EUROPE 12327/1). Issues to be addressed include the provision of this fiscal capacity, how it is to be financed, and the decision-making process.
On behalf of the EPP Group, Markus Ferber of Germany certainly paid tribute to Mr Draghi's action at the height of the sovereign debt crisis, while criticising a monetary policy that was too accommodating in relation to the economic situation in the euro area. Above all, he pointed to the ECB's recent decision to relaunch the asset purchase programme with a monthly amount of €20 billion from November onwards and for an indefinite period, until the decision to raise key rates again is taken (see EUROPE 12326/1).
Mr Draghi gave a twofold explanation for this decision taken by the majority of the members of the Governing Council despite the German and Dutch opposition: the growth momentum is in “constant deterioration” due to geopolitical factors – Germany being one of the “most affected” countries – and the inflation forecasts are “well below” the mission assigned to the Monetary Institute.
“If we don't act, we don't comply with our inflation aim”, the ECB President stressed, confident that a further easing of monetary policy will eventually bear fruit. But he also called for fiscal policy to follow the lead of monetary policy. In other words, countries with fiscal space should invest more to stimulate growth, while countries without fiscal space should reform their economies to make them more competitive.
The ECB forecasts GDP growth for the euro area of 1.1% in 2019, 0.6% lower than its December 2018 forecast, and 1.2% of GDP in 2020, 0.5% lower. Inflation is expected to reach 1.2% in 2019, 1.0% in 2020 and 1.5% in 2021.
Helicopter money. Welcoming Mr Draghi's decision-making ability, Greens/EFA Group Co-President Philippe Lamberts of Belgium said that the injection of a “liquidity tsunami” into the financial system had increased social inequalities and worsened the situation from an ecological point of view, with investments still massively concentrated in energy-intensive sectors. ‘Quantitative easing’ is “a kind of monetary helicopter for the rich”, he commented.
Mr Draghi replied that the ‘quantitative easing’ operation of massive repurchases of mainly public securities, which ended at the end of 2018 (see EUROPE 12159/14), had, on the contrary, made it possible to reduce inequalities, mainly through the large-scale reduction of unemployment. It was reduced to 7.5% of the working population in July in the euro area, the lowest level since 2008, he argued. (Original version in French by Mathieu Bion)