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In a contentious appearance before the European Parliament on Wednesday, the president of the European Central Bank said that the future of the euro zone was at risk unless member countries gave up some independence and created more Pan-European government institutions.
"We have not yet reached the stage of a genuine monetary union," the central bank president, Mario Draghi, said in a speech to the European Parliament in Brussels. Failure of euro zone countries to harmonise their economies and create stronger institutions, he said, "puts at risk the long-term success of the monetary union when faced with an important shock."
Draghi has often urged euro zone governments to do more to improve their economic performance, for example by overhauling restrictive labour regulations. But it was unusual for him to suggest that the future of the euro zone could depend on whether countries heed his advice.
Although in his prepared remarks Draghi did not mention Greece, his speech came as turmoil in that country is again preoccupying policy makers and threatening to again create a crisis for the currency union.
During lawmakers' responses to Draghi's remarks, a Greek parliamentarian suggested that the European Central Bank was profiting from its holdings of Greek government bonds. Draghi pointed out that interest from the bonds, acquired beginning in 2010 in an effort to hold down Greece's borrowing costs, is passed back to the Athens government.
The answer prompted the Greek legislator, Notis Marias, to begin shouting from his seat, drawing a rebuke from Mairead McGuinness, a vice-president of Parliament who was presiding over the session.
Draghi said that the European Central Bank would accept Greek government bonds as collateral again in extending loans to banks, if the country shows that it is willing to stick to the conditions of its bailout.
The central bank stopped accepting Greek bonds early this month, a blow to banks which have used their holdings of Greek government bonds to borrow from the central bank at a cheap interest rate of 0.05 per cent. Since then the banks, facing signs of a capital flight, have relied on emergency cash from another central bank program that carries a higher interest rate.
Draghi in his speech also noted that euro zone countries have made progress in centralising tasks like bank regulation. But without naming other specific examples, he said more institutions need to be created to make sure that euro zone countries follow their own rules. Members of the currency bloc have often violated guidelines on public spending and debt.
"In the medium to longer term, 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 so as to strengthen our economic policy governance," Draghi said. "A common rule is only as strong as the common institution that can enforce it."
Draghi also used the appearance at Parliament to defend the central bank's decision last month to begin buying government bonds as a way of arresting an alarming decline of euro zone inflation to levels considered bad for growth. But he said the so-called quantitative easing would work much better if countries did their part, for example by removing lengthy approvals and fees required to set up a business.
After he was done speaking and while the parliamentary debate was still underway, Draghi departed, citing other commitments. Several members of Parliament expressed dismay over his early exit.
David Coburn, a Scottish member of Parliament from the right-wing United Kingdom Independence Party, said Draghi's behaviour "would never be allowed in the House of Commons."
Bernd Lucke, leader of the right-wing Alternative for Germany party and normally no fan of Draghi's, gestured to the large number of empty seats in the chamber and noted that most members of Parliament had also not bothered to show up.
©2015 The New York Times News Service
