22nd Oct 2016

Draghi: euro countries to lose even more sovereignty

  • Draghi is the father of the 'fiscal compact' but has now the 'growth compact' as well (Photo: The Council of the European Union)

European Central Bank (ECB) chief Mario Draghi has urged eurozone leaders to come up with a 10-year target for the common currency, saying they should accept more transfer of powers if they truly want a fiscal union.

Held exceptionally in Barcelona instead of the ECB headquarters in Frankfurt, the monthly meeting of eurozone's central bank governing council on Thursday (3 May) was an opportunity for Draghi to explain what he meant last week when he said a "growth compact" is needed along with the deficit-cutting measures taken by most governments.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

"There is absolutely no contradiction between a growth compact and a fiscal compact," the Italian banker said in reference to the treaty on fiscal discipline signed in March by 25 EU leaders.

Draghi himself had earlier coined the "fiscal compact" moniker.

He went on to explain that governments have to stick to tighter budgets, while reforming labour markets, increasing competition, re-balancing employment towards young people.

"I can understand the anger of young people, of poor and jobless young people. I can understand it very well. The answer we can give as policy makers is that the policies suggested or implemented are the policies we are convinced to be the right ones."

Also part of his vision of a "growth compact," Draghi backed calls for a boost in the resources of the European Investment Bank and said EU funds needed to be "redirected" to low-income areas - ideas already floated by Francois Hollande, the frontrunner in the Sunday presidential elections in France.

"But the thirdly and most importantly is that we collectively have to specify a path for the euro. How do we see ourselves in 10 years from now ...We want to have a fiscal union? We have to accept the delegation of fiscal sovereignty from national to some form of central [government]," he said.

In getting there, politicians should however refrain from talking about a "transfer union" as a starting point, he said, in reference to richer countries automatically paying for poorer ones, a concept most loathed by Germany and its independence-wary Bundesbank.

"That is why the fiscal compact is so important, that is the starting point," Draghi noted.

For its part, Fitch ratings agency published a report outlining five possible scenarios for the future of the eurozone: a "Greek Exit;" a "Quasi-Fiscal Union;" the "Euro-mark" where Germany and a "core" exit leaving the remaining countries with the euro; the "United States of Europe;" and a "Full Break Up."

A full break-up and the demise of the euro is very unlikely, Fitch said in a press statement, given the huge financial and political costs.

"Even a partial 'break-up' involving the exit of one or more so-called peripheral nations would risk severe systemic damage, although cannot be discounted. The likelihood of a move to full fiscal union in the near term is also very small, as in Fitch's view, the political will for it does not exist."

Instead, the eurozone will continue to "muddle through," the ratings agency predicted, agreeing with Draghi that "some dilution of national fiscal sovereignty" was still to come.

Of the five scenarios, "Fitch believes that a Greek exit is the most likely", it added.

In this case the southern country would have to re-denominate its debt and default again. That would lead Fitch to downgrade Cyprus, Ireland, Italy, Portugal and Spain "owing to the 'exit precedent' of Greece and risk of contagion to banks, bond markets and capital flight," it explained, just three days ahead of general elections in Greece.


Europe ready to tackle Greek debt relief

The Greek government has built and broadened alliances in EU institutions and member-states that acknowledge the need to restructure the debt and deliver another economic model for the eurozone.

News in Brief

  1. Canada and Wallonia end talks without Ceta deal
  2. Juncker hopes for Canada accord in 'next few days'
  3. Romania drops opposition to Ceta
  4. Difficulties remain on Ceta deal, says Walloon leader
  5. Brexit could lead to 'some civil unrest' in Northern Ireland
  6. ECB holds rates and continues quantitive easing programme
  7. Support for Danish People's Party drops, poll
  8. Spain's highest court overturns Catalan ban on bullfighting

Stakeholders' Highlights

  1. EFADraft Bill for a 2nd Scottish Independence Referendum
  2. UNICEFCalls on European Council to Address Plight of Refugee and Migrant Children
  3. ECTAJoin us on 9-10 November in Brussels and Discover the new EU Digital Landscape
  4. Access NowCan you Hear me now? Verizon’s Opportunity to Stand for Global Users
  5. Belgrade Security ForumMeaningful Dialogue Missing Not Only in the Balkans, but Throughout Europe
  6. EASPDJoin the Trip! 20 Years on the Road. Conference & Photo Exhibition on 19-21 October
  7. EuropecheEU Fishing Sector Celebrates Sustainably Sourced Seafood in EU Parliament
  8. World VisionWomen and Girls Urge EU Leadership to Help end Gender-based Violence
  9. Dialogue PlatformIs Jihadism Blind Spot of Western Intellectuals ? Wednesday 26 October
  10. Belgrade Security ForumGet the Latest News and Updates on the Belgrade Security Forum @BelSecForum
  11. Crowdsourcing Week EuropeMaster Crowdsourcing, Crowdfunding and Innovation! Conference 21 November - 10% Discount Code CSWEU16
  12. EJCEU Parliament's Roadmap for Relations with Iran a Massive Missed Opportunity