Draghi calls for ‘quantum leap’ in eurozone integration

Mario Draghi: "Things have changed." [European Commission]

Describing the eurozone economy as “steadily recovering”, European Central Bank President Mario Draghi called yesterday (16 March) for a “quantum leap” in institutional convergence of the eurozone.

A week after the ECB began printing money to buy sovereign bonds, Draghi said the bank’s stimulus, lower oil prices and structural reforms in eurozone economies were helping support growth in the 19-country bloc.

“We are meeting against the backdrop of a steadily recovering economic situation in the euro area,” he said in a speech for delivery at a finance conference.

“Most indicators suggest a sustained recovery is taking hold,” he added. “Confidence among firms and consumers is rising. Growth forecasts have been revised upwards. And bank lending is improving on both the demand and supply sides.”

The ECB had helped generate this upturn, said Draghi. Earlier on Monday, the ECB said it settled €9.751 billion of public-sector bond purchases in the first week of the programme to pump more than €1 trillion into the eurozone economy.

Under this quantitative easing (QE), the ECB intends to buy €60 billion a month of mainly sovereign bonds until September 2016, or beyond if needed to see a sustained adjustment in inflation back towards the ECB target.

The central bank projects its QE plan will invigorate a frail eurozone recovery, already helped by lower oil prices and a revival in bank lending.

But Draghi warned the currency area’s economies and institutions have not converged sufficiently.

“This is why, whenever there is a serious shock in any part of the euro area, questions about the sustainability of the union still arise,” he said, pressing countries to reform their economies to stand on their own two feet.

“Sovereignty sharing”

Eurozone countries had not yet converged sufficiently to dispel doubts about the bloc’s cohesion, said Draghi, stressing: “We have now integrated too much to even entertain reversing the process – our economies are far too intertwined.”

Draghi has been pushing deeper integration since early 2012, when the eurozone debt crisis led him and other top crisis-fighting figures to work on a roadmap towards a banking union, fiscal union, economic union and political union.

His French predecessor, Jean-Claude Trichet, called in 2011 for a central European finance ministry.

The Italian ECB president noted Europe’s fiscal rules have repeatedly been broken, straining trust among countries.

In response, he proposed deeper institutional integration, with more shared sovereignty and strengthened accountability of the European Union towards its citizens.

“In sum, my conclusion is that there must be a quantum leap in institutional convergence,” Draghi said.

“We need to move from a system of rules and guidelines for national economic policy making, to a system of further sovereignty sharing within common institutions,” he added. 

On 24 October 2014, the Euro Summit invited the President of the European Commission, in close cooperation with the President of the Euro Summit, the President of the Eurogroup and the President of the European Central Bank, “to prepare next steps on better economic governance in the euro area.”

On 18 December 2014, the European Council confirmed the mandate given to the four presidents.

At the February summit, European Commission President Jean-Claude Juncker, presented an Analytical Note on the Economic and Monetary Union (EMU).

The note was prepared in close cooperation with European Council President Donald Tusk, Eurogroup President Jeroen Dijsselbloem, and European Central Bank President Mario Draghi.

The paper doesn’t call for separate institutions, or a budget for the eurozone, or mention a potential EU treaty change. But it does raise a number of questions which lead in those directions.

>> Read: Juncker sparks debate about a core eurozone union

The next step is a discussion at the level of heads of state and government, to be held at the June summit. 

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