HELSINKI – European Central Bank head Mario Draghi says the euro currency union remains “incomplete” and needs to be strengthened with better oversight of member countries’ economic policies to avoid future crises.
Draghi said in the text of a speech Thursday in Helsinki that “for all its resilience, our union is still incomplete.”
He said the 18 member countries have agreed not to bail each other out through fiscal transfers — the way richer and poorer states do in the United States — so they need to find other ways of keeping problems in one member country from affecting them all.
He called for “joint sovereignty” over economic policies and urged tougher use of existing tools such as the annual review of national budgets by the European Union’s executive commission as a way to keep bad economic policymaking from triggering economic trouble in individual countries.
The eurozone is struggling to emerge from a crisis that began in 2009-10 over troubles with government debt in smaller countries such as Greece, Ireland and Portugal and quickly led to fears the currency union might break up. Markets are calmer now and those breakup fears have receded. But the eurozone as a whole is still mired in low growth and high unemployment.
Draghi said it isn’t realistic to expect euro member countries to send each other money to even out imbalances. He noted that such fiscal transfers help keep regional recessions from becoming national crises in the United States, where richer states persistently send tax dollars to poorer ones.
“Would it be imaginable that we have a monetary union based on permanent debtors and permanent creditors, forever?” he asked the audience at the University of Helsinki. “Such unions do exist. The United States, for example, is a situation where there is a state — Oklahoma — which is a permanent debtor. And New York state is a permanent creditor. “
Yet Europe hasn’t reached that level of political closeness, he said: “Is it realistic to think that such a union could exist in our case? The sense is that it’s not realistic at this point in time.”
Instead, the eurozone needs to find other ways of spreading the pain in times of trouble — and to enforce rules intended to keep trouble from breaking out in the first place.
EU officials are currently reviewing national budgets, under existing rules that limit the amount of debt and deficit spending that countries can run up. They are due to decide before the end of the month whether to fine some countries like France and Italy for not meeting targets.
Draghi said such rules — which were strengthened after the debt crisis broke out — needed to be enforced and expanded on.
He said the process of completing the euro can’t stop there. He also called for more cross-border integration of financial markets and bank lending. That way, any troubles would be eased by being spread across shareholders and financial institutions in the currency union as a whole.