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ECB's Draghi: Myopia killing the euro

June 1, 2012 at 3:00 AM   |   Comments

BRUSSELS, June 1 (UPI) -- European governments must surrender more budget and regulatory power to a central authority for the euro to survive, the European Central Bank president said.

The central bank for the 17 European Union eurozone countries is reaching the limits of its powers, Mario Draghi told members of the European Parliament.

"Can the ECB fill the vacuum left by the lack of euro area governance?" he asked. "The answer is no."

Just as the economic crisis has shattered illusions about the sustainability of government debt, he told lawmakers Thursday, so too should it be changing illusions about the underlying structure of the euro currency.

"That configuration we had for 10 years, which was basically considered sustainable -- I should add in perhaps a myopic way -- is being shown now to be unsustainable unless further steps are undertaken," said Draghi, an Italian banker and economist who took over the job Nov. 1.

Half-measures and delays have made the eurozone crisis worse, he said.

"Dispel this fog," Draghi said.

Leaders must expand their vision and thought beyond their current understanding of "national interest" and realize that for their own interests and the sake of the economic and monetary union, they must surrender far more budget and regulatory power to a central authority, he said.

He criticized Spain's slow response to its mushrooming banking crisis, highlighted by the recent nationalization of Bankia SA, a conglomeration of savings institutions.

Spain's government has consistently failed to get a grip on its banking sector's problems, Draghi said.

"There is a first assessment, then a second, a third, a fourth," he said. "This is the worst possible way of doing things. Everyone ends up doing the right thing, but at the highest cost."

Spain announced last week it would inject an additional $23.5 billion into Bankia, the country's fourth-largest lender, bringing Madrid's biggest bank nationalization to more than $29 billion.

Spain said in February it would not need to spend more public money for its banks.

The total amount Spain needs to prop up its banks is not known.

The government of Prime Minister Mariano Rajoy said Thursday it had at least four months to raise the $23.5 billion, so it has time to explore funding options.

Spain's central bank said Thursday $120 billion in capital -- about 10 percent of the country's gross domestic product -- had left the country in the first three months of 2012.

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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