Monday

18th Jun 2018

Don't touch EU stability pact, warns ECB's Draghi

  • Draghi: 'The present rules already contain enough flexibility' (Photo: Council of European Union)

ECB boss Mario Draghi urged EU leaders not to meddle with the bloc's rules on debt and deficits on Monday, warning that it could turn the tide on much needed economic reforms.

Addressing MEPs on the Parliament's economic affairs committee in Strasbourg (14 July), Draghi said structural reforms combined with government spending cuts and lower taxes were the only route to restoring economic stability.

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"There should be a profound structural reform process," he said, adding that "there is no other way”.

“We should take great care not to roll back this important achievement, or to water down its implementation to an extent that it would no longer be seen as a credible framework," he said.

Italian prime minister Matteo Renzi, whose government holds the EU's six month presidency, has led calls for the pact's rules to be applied with more flexibility to allow governments to increase public investment programmes.

The demand was rejected by Draghi who stated that “the present rules already contain enough flexibility".

“If a rule is a rule then it has to be complied with," he said, commenting that "I’m not sure I get - perhaps because I lack political skills - the chemistry of flexibility being essential to make a rule credible”.

He also reiterated that EU leaders should consider "some form of common governance over structural reforms” to ensure that countries push through reform programmes.

Speaking with MEPs for the first time since the Frankfurt-based bank cut its main interest rate to a historic low of 0.15 percent, the ECB boss also faced down claims that low rates were hurting savers and pensions in the bloc's wealthier countries.

“As soon as the recovery gains momentum the interest rates will go up again," he said, but argued that the effect of the ECB's monetary policy on interest rates in Germany was "not strong”.

"We will keep the key ECB interest rates at current levels for an extended period of time," he concluded.

Draghi also defended the ECB's soon-to-be-launched scheme allowing banks to borrow at low rates from it for up to four years, providing that they increase lending to businesses.

The programme, which economists predict will result in more than €700 billion in lending within two years, is the latest attempt by the bank to kick-start the eurozone's stuttering economy.

Critics have warned that it could lead to a 'free lunch' for banks to borrow more cheap money to prop up their balance sheets.

“Our policy will remain expansionary for a long time," said Draghi, adding that "we don’t see a situation of systemic bubbles”.

ECB cuts interest rates to record low

The ECB cut interest rates to a record low Thursday in an attempt to arrest a slump in inflation which threatens the eurozone's fragile recovery.

Greek bailout exit takes shape

At a meeting next week, eurozone finance ministers and the IMF are expected to agree on new cash, debt relief measures, and a monitoring mechanism to ensure that Greece can live without international aid for the first time since 2010.

Analysis

Beyond US dispute, EU still aiming at China

On the day it outlined its reaction to US tariffs on steel and aluminium, the EU commission also launched a case against China on property rights - an issue on which EU and US are working hand-in-hand.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

Opinion

Europe could lose out in North Korean bonanza

South Korean businesses including Hyundai and Samsung are already scoping investment opportunities. Will North Korea become a 'new Vietnam' opportunity - or more like Myanmar, where slow Brussels policy-making meant EU exporters lost out.

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