BERLIN (Reuters) - The euro zone needs a new fiscal instrument and more public risk-sharing to fight the sort of crises that have left lasting scars on the currency bloc’s economy and society, European Central Bank President Mario Draghi said on Wednesday.
Addressing a seemingly stalled political debate, Draghi said only a big step towards further integration could boost growth and productivity, easing the economic malaise that has some people questioning the European project.
Germany has for years resisted many of the steps advocated by the ECB, fearing that closer integration could force its taxpayers to foot the bill for the debts of foreign governments and banks.
But Draghi said sharing risks boosts confidence and stability, and he added that a way to achieve it would be to create a common fiscal tool that would fight market speculation during crises, when investors tend to retreat from the countries affected.
“There ought to be an instrument that complements monetary policy in delivering macroeconomic stability both at the euro area level and, crucially, in each of its member states,” Draghi said.
Draghi initially planned to call for a “sizeable” tool, according to the text of the speech published by the ECB, but he appeared to tone down his message at the last moment as he merely called for an instrument “adequate” in size.
Italy’s new government has challenged EU fiscal rules in recent weeks, publicly discussing the idea of exceeding its deficit limits and even suggesting that the ECB could provide it with further support.
But Draghi seemingly dismissed the idea, arguing that the bloc needs to rekindle faith in fiscal rules by making them both more countercyclical and more binding.
He also called for a more integrated single market, saying that open trade boosts growth and in a time of rising protectionism, internal trade could become more crucial.
“According to one estimate, removing all barriers to trade could raise the EU’s income by up to 14 percent over 10 years and double intra-EU trade,” Draghi said.
“In an international environment where trade openness can no longer be taken for granted, a broad and deep internal market may become even more important to shield us from external shocks,” he added.
Speaking in a panel discussion at the same conference, German Finance Minister Olaf Scholz called on euro zone governments to agree this year on their next steps for completing a banking union in order to make the single currency bloc resilient for the next crisis.
“It would be a big pity if we haven’t established all the instruments necessary when it happens,” Scholz said.
“So I’m absolutely sure that we do not have time and it would be great progress if we were to succeed this year with the most important steps, the next steps for the banking union, and to agree on the ones that have to come afterwards,” he added.
Reporting By Michael Nienaber; Writing by Francesco Canepa and Balazs Koranyi in Frankfurt; Editing by Hugh Lawson