BRUSSELS: European Central Bank Chief Mario Draghi said on Monday he had no doubts about the ability of the euro to survive the current debt crisis.
“I have no doubts whatsoever about the strength, the permanence and the irreversibility of the euro,” Draghi told a hearing of the European Parliament’s Committee on Economic and Monetary Affairs here.
Draghi, who took over as head of the ECB in November, was being quizzed about an interview he had given to the Financial Times in its Monday edition in which his remarks were interpreted as a warning of a possible break-up of the single currency.
He dismissed such a reading as “morbid speculation.”Questioned about the ECB’s role in solving the debilitating crisis which has pushed Europe to the brink of recession, Draghi said the bank’s primary task was to safeguard price stability.
The guardian of the euro, seen by many as the only body with enough financial clout to solve the crisis, is under intense pressure to upscale its fire-fighting role and simply print enough money for governments to repay their crushing mountains of debt.
But the ECB refuses to do so, insisting that it is up to governments to put their house in order and not for it to help them out with a course of action that could easily stoke inflation.The European Union treaty “forbids monetary financing of states” by the ECB, Draghi insisted.
The ECB has, in order to support countries in trouble, been buying up their sovereign bonds to help keep down their borrowing costs.
But such purchases were “neither eternal nor infinite,” Draghi said. “We must act within the limits of the treaty,” the central bank chief insisted. If it were to breach those limits it would “hurt the credibility of our institution,” he insisted. “And that would not be good for market confidence.”
The ECB “cares about financial stability” but must act in a way so as not to damage its credibility, he insisted. The central bank’s task was to make sure banks had the liquidity needed so as to allow the economy to keep functioning, Draghi argued.
Asked about a possible downgrade of the sovereign debt ratings of France, the Eurozone’s second-largest economy, the central bank chief said: “Frankly, we shouldn’t make too much of these rating changes by agencies.”
Such ratings were simply one of a number of different factors for input into an overall assessment, he said, adding he hoped France would not lose its current top triple-A rating.
The idea of Eurobonds — or debt issued jointly by Eurozone countries — has also been proposed as a way out of the current crisis. But Draghi was dismissive of such a mechanism in the context of the current set-up of the single currency area.
“Eurobonds might make sense in a fiscal union but if you don’t have a fiscal union, one should ask whether it would be feasible to have joint and several issuance (of bonds) while countries continue to spend separately, without sharing,” he said.
The idea of Eurobonds would only make sense if countries were willing to give up their national sovereignty in fiscal matters, Draghi argued.