FRANKFURT (Reuters) - Europe must take a leap forward in integration and create the institutions needed for economic stabilization as monetary policy loses potency, outgoing European Central Bank President Mario Draghi said on Monday.
Having faced years of crises or weak growth, the ECB has exhausted its conventional policy arsenal and now relies on untested, unconventional tools to stimulate growth.
“It is plain to see that now is the time for more Europe, not less,” Draghi said at a farewell event, just day before his eight-year term ends and he hands power to Christine Lagarde on Nov 1.
Speaking to an audience that included German Chancellor Angela Merkel and French President Emmanuel Macron, Draghi argued that a common budget for the EU was necessary so there would be a centralized capacity to stabilize the monetary union.
EU finance ministers agreed on a small budget for the euro zone earlier this month, but it fell short of the original ambitions or the sort of tool ECB officials had hoped for.
“Today, we are in a situation where low interest rates are not delivering the same degree of stimulus as in the past, because the rate of return on investment in the economy has fallen,” Draghi said at a farewell event.
“Monetary policy can still achieve its objective, but it can do so faster and with fewer side effects if fiscal policies are aligned with it,” he added.
Germany has long resisted a large common budget or more risk- sharing, fearing that its taxpayers would have to foot the bill for the fiscal irresponsibility of other countries.
Speaking at the event, Macron said that it was up to governments to fix the euro zone.
“It’s up to us heads of state and government to take forward your famous ‘whatever it takes’,” Macron said, referring to Draghi’s 2012 speech that is credited with saving the euro zone. “To match your courage and foresight, we must be the custodians of your legacy.”
Reporting by Francesco Canepa and Frank Siebelt, writing by Balazs Koranyi, editing by Larry King