MARIO DRAGHI has warned of the costs of a euro zone break-up, breaching a taboo for a president of the European Central Bank, even as he sought to play down market expectations about the ECB’s role in combating the sovereign debt crisis.
Mr Draghi’s willingness to discuss a scenario for Europe’s 13-year-old monetary union that his predecessor, Jean-Claude Trichet, simply described as “absurd”, highlights the high stakes in the euro zone debt crisis.
In his first interview since becoming ECB president on November 1st, Mr Draghi said that struggling euro-zone countries that quit the currency bloc would face still greater economic pain.
For remaining members, European Union law would have been broken, and “you never know how it ends”, he said.
To fight the crisis, Mr Draghi stressed the importance of measures taken by the ECB to shore up euro-zone banks, which include its first-ever offer of unlimited three-year loans this week. But he emphasised that the region’s politicians had to take the lead in rebuilding investor confidence in euro-zone public finances – by ensuring fiscal discipline and making the European Financial Stability Facility, Europe’s rescue fund, fully operational.
The ECB would be able to act as agent to the EFSF in financial market operations from January – speeding its implementation, Mr Draghi said. He expressed hope that the fund’s resources would be enlarged after a review in March.
“If one can show its usefulness in its present size, the argument for its enlargement would be much stronger,” he said. Mr Draghi was cautious about commenting in detail on the ECB’s own government bond purchasing programme, which has seen it acquire more than €200 billion of largely southern European debt since May 2010.
Many European politicians and economists argue the only solution to the crisis is a huge escalation of the programme, but just how controversial that is within the ECB was underlined over the weekend as the bank’s top German executive made clear that objections to the programme prompted him to resign. Jürgen Stark, who steps down at the end of the year, in September said that he was quitting owing to “personal reasons”. Mr Stark has now told a German magazine: “There is one big topic that explains – I am not satisfied with how this currency union has developed.”
Mr Draghi appeared to rule out US or UK-style “quantitative easing” – embarking on large-scale government bond purchases to boost economic growth.
“The important thing is to restore the trust of the people – citizens as well as investors – in our Continent. We won’t achieve that by destroying the credibility of the ECB.”
– Copyright The Financial Times Limited 2011
