Bank Official Warns Euro Framework Is 'Unsustainable'
Originally published on Fri June 1, 2012 9:04 am
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The financial woes of Greece and other countries of the eurozone have meant painful austerity measures in exchange for financial bailouts. Now Irish voters have approved a European Union treaty to battle the debt crisis. It's an effort to enforce strict budget cuts or face financial penalties.
Critics had accused officials of using scare tactics to gain voter support. They said even if Ireland didn't approve the treaty, the European Union would continue to help the country financially. But Mario Draghi, president of the European Central Bank, told Europe's leaders that the crisis is no bluff. As NPR's Philip Reeves reports, it was the sternest warning so far from Europe's top banker.
PHILIP REEVES, BYLINE: The debate over how to save the eurozone from breaking up has a new note of urgency. In the last couple of years, the crisis has brought down governments, wrecked banks, and ruined countless lives and businesses. Yet, says Mario Draghi, Europe's leaders are lost in a fog.
Draghi addressed the European parliament yesterday, and posed this question.
MARIO DRAGHI: How is the euro going to be, to look like in a certain number of years from now? What is the Union vision that we, that you have a certain number of years from now? And I think the sooner this has been specified, the better it is.
REEVES: Well over a decade has elapsed since the euro was launched. The currency is now used by 17 nations. But Europe's currency union was set up with some fundamental flaws - including the absence of a common fiscal policy. These flaws need fixing, says Draghi.
DRAGHI: That configuration that we had with us by and large for 10 years, which was basically considered sustainable, I should say, I should add, in a perhaps myopic way, is being shown now to be unsustainable unless further steps are being undertaken.
REEVES: The European Central Bank that Draghi heads is credited with doing a lot to stave off disaster in recent months. It's pumped well over a trillion dollars in cheap loans into Europe's banking system. But Draghi said his bank cannot fill the policy vacuum caused by the lack of effective action by the eurozone's national governments.
His appeal for a plan was echoed by Olli Rehn, the European Commission's top financial official.
OLLI REHN: Let's be frank. At least we want to avoid a disintegration of the eurozone, and instead make the euro survive and succeed for the sake of its member states and especially their citizens.
REEVES: Europe's leaders are worrying about the impact about a Greek exit from the eurozone. But the spotlight's also now trained on Spain, the zone's fourth largest economy. There's growing concern Spain will need a big bailout, like Greece, Portugal and Ireland, because of its banking crisis. Draghi wants there to be tighter central control over Europe's banks - though that would mean countries losing some sovereignty. He says national governments aren't all that good at dealing with banks that have run into trouble.
DRAGHI: Whenever we are confronted with the dramatic need to recapitalize, if you look back, the reaction of the individual governments, countries, supervisors, national supervisors, is to - first to say, underestimate the importance of the problem, then come out with a first assessment, then a second, then a third, then a fourth.
REEVES: That problem's arisen in Spain. Its government now says one of its biggest banks, Bankia, needs a bailout of more than $20 billion. That's much more than it initially estimated.
Spain's approach is par for the course in Europe, says Draghi.
DRAGHI: This has been the experience, I would say, everywhere. Now if you look at the - all countries have done exactly the same thing. Now, that's the worst possible way of doing things, because you end up, obviously everybody ends up doing the right thing, but at the highest possible cost and price.
REEVES: Philip Reeves, NPR News, London Transcript provided by NPR, Copyright National Public Radio.