European Central Bank President Mario Draghi warned European leaders on Thursday (17 March) that monetary policy alone would not be enough to jumpstart the economy and that governments needed to do their job by pushing through structural reforms.
“I made clear that even though monetary policy has been really the only policy driving the recovery in the last few years, it cannot address some basic structural weaknesses of the eurozone economy,” Draghi told reporters.
“For that you need structural reforms, mostly driven to raise the level of demand, public investments and lower taxes. Even more importantly, one needs clarity on the future of our … monetary union,” he said after speaking to EU leaders.
European leaders will discuss further integration of the economies and policy-making of the 19 countries sharing the euro at a summit in June.
Ideas for further integration, put forward by the European Commission, France and Italy, include a joint deposit-guarantee scheme, a eurozone finance minister and a joint treasury.
Among the most controversial ideas is the joint issuance of debt, for instance to help finance reforms or to counter the effects of troughs in the business cycle. Germany strongly opposes the joint deposit-guarantee plan as well as any joint debt issuance.
Draghi spoke to reporters after briefing European leaders on the state of the eurozone economy and the risks it was facing.
“The economy is recovering, albeit with a lower momentum. We see signs of improvements in various parts of the economy — partly in the labour market, partly in the credit market,” Draghi said.
“But the risks remain on the downside and some of these risks have been intensifying, starting with early December last year,” he said.
Draghi said he expected ECB interest rates to stay low, or to be even lower than now, for a considerable period.
“The Governing Council expects the interest rates to remain at present, or at lower levels … for an extended period of time and well beyond the end of our asset purchase programme,” he told reporters, repeating his remarks from last week.
In December, the ECB extended the duration of its asset purchase programme, under which the bank buys eurozone government bonds to inject more cash into the slow-growing economy, by six months until March 2017 — “or beyond” as Draghi said.
In order to strengthen eurozone governance, the Presidents of the European Commission, the Council, the Eurogroup, the European Parliament and the European Central Bank were invited to combine their efforts to prepare the "next steps for a better economic governance in the euro area".
The report, presented in June 2015, concluded that "for the euro area to gradually evolve towards a genuine Economic and Monetary Union (EMU), it will need to shift from a system of rules and guidelines for national economic policy-making to a system of further sovereignty sharing within common institutions, most of which already exist and can progressively fulfil this task".
The report foresees three stages in deepening integration:
- Stage 1 (1 July 2015 - 30 June 2017): A "deepening-by-doing" stage, where small steps are taken towards fiscal convergence, using "existing instruments" and treaties.
- Stage 2 (30 June 2017 - 2025): A "more binding" completion stage, with "a set of commonly agreed benchmarks for convergence that could be given a legal nature, as well as a euro area treasury".
- Stage 3 (By 2025 at the latest): A final stage, where the vision would be complete.
As part of this process, the Five Presidents' Report urged member states to conclude the banking union by setting up an EU Deposit Guarantee Scheme.