Outgoing European Central Bank President Mario Draghi stressed in his farewell press conference on Thursday (24 October) that a truly eurozone budget “with an adequate size” would be the number one issue to fix in the eurozone.
Speaking to reporters after the last ECB governing council he chaired, Draghi defended his legacy, which came into question following the last monetary decisions adopted in September, including further cuts of the rate deposits and restarting the asset purchasing programme.
“Unfortunately, everything that happened since September has shown abundantly that the Governing Council’s determination to act in a substantial manner was justified,” he said pointing at the weak level of manufacturing indicators, the lowest register since the euro crisis in 2012.
Asked about one thing he would fix in the eurozone, he insisted on the idea of a common pot for the euro area members, either as a eurozone budget or a reinsurance system.
“One needs to have a central fiscal capacity,” with adequate size and a countercyclical function, he explained.
He admitted that the design of its rules would be very important in order to avoid the moral hazard that it’s blocking its inception.
Some member states, led by The Netherlands, blocked the idea of a eurozone budget as they refused to support member states disregarding their public balances targets and reforms recommendations.
The eurozone finance ministers adopted this month the details of a watered-down version, the budgetary instrument for convergence and competitiveness, with a constrained stabilisation function and limited resources.
The incoming European Commission led by Ursula von der Leyen also intends to put forward a proposal for a European Unemployment Reinsurance Scheme, which would function as a central fiscal capacity to support ailing member states against sudden economic shocks.
‘Ask my wife’
As no monetary decisions were announced, most of the questions on Thursday were related to his eight-year mandate, the difficult relationship with the German constituency, and his future.
He described his experience at the ECB helm as “very intense, profound and fascinating”.
He said that he doesn’t know what he would do once he leaves Frankfurt. “Ask my wife, she would know. I hope she does,” he joked.
Draghi argued in various occasions that his monetary decisions were only guided by pursuing the ECB’s mandate of inflation below but close to 2%. “We stayed firm on this course”.
Two years ago, the ECB was prepared to exit the unconventional measures that helped to overcome the recession. But the conditions changed, partly due to the uncertainty brought by the trade war and Brexit.
He said that, during the IMF meetings held this month in Washington by senior officials, it was clear that “the paradigm of reference has changed”.
If central bankers and policymakers expected before that the low interest rates would return to normal levels sooner than later, it is now assumed that the exit from the unconventional monetary policy will take time, Draghi explained.
Nevertheless the Italian central banker said that the ECB monitored the markets “very closely” to detect the risk of bubbles. Even if some valuations were overstretched, he explained that it was not due to monetary actions.
Draghi once again called on governments with sound public finances to invest more, while recommending that euro members with high debt levels adjust further their economies so they can have some room for manoeuvre once the economic situation worsens.
Christine Lagarde, who will take over from 1 November, attended the governing council but did not intervene during the deliberations.
Although Draghi had no advice for her, he suggested that the ECB should progress more on engaging with national stakeholders, given that it is more difficult to operate as a central bank in a multi-country jurisdiction.
“I was trying to do as much as one can do here. More can be done, should be done, and one never should be tired of doing it,” Draghi said.
He noted the improvement in terms of transparency over the past years to better engage with national audiences. But he was cautious to say that the ECB should focus less on market participants and more on the general public.
If you change the audience, you will change the language, and then you may be stepping into politics, Draghi said.
[Edited by Zoran Radosavljevic]