By Huw Jones and Francesco Canepa
LONDON, July 9 European Central Bank President
Mario Draghi urged euro zone states to respect their joint
fiscal rules and extend their cooperation to economic reforms,
telling governments they must "learn to govern together".
While reiterating his message that the ECB is ready to use
"unconventional instruments" - code for large-scale asset buying
- if needed, he devoted most of a speech in London to pressing
for closer European integration to deliver growth and jobs.
Draghi, who brought the euro zone back from the brink of
break-up in 2012 with his pledge to do "whatever it takes" to
save the euro, called on countries to respect the EU's Fiscal
Compact on reducing public debt.
"What is essential now is that these rules are enforced," he
said in the text of his speech, a memorial lecture on Wednesday
in honour of the late Italian minister and ECB policymaker
"To unwind the consolidation that has been achieved, and in
doing so to divest the rules of credibility, would be
self-defeating for all countries," Draghi said.
His comments come as euro zone policymakers debate the
flexibility of their fiscal rules, with Italian Prime Minister
Matteo Renzi leading calls to move from austerity to expansion.
Draghi appeared to push back: "Fiscal rules should be viewed
in the national debate as promoting growth-friendly fiscal
consolidation and not simply as a painful accounting exercise."
The ECB president added that high debt made countries more
vulnerable in the event of financial shocks.
Furthermore, only by showing a willingness to respect common
fiscal rules could euro zone states achieve the mutual trust
that is a pre-requisite for integration in other areas, he said.
STRUCTURAL REFORM MESSAGE
Pressing for closer integration, Draghi urged euro zone
states to align their approach to structural reforms - efforts
to shape up economies by, for example, liberalising labour
markets - using the template of the common fiscal rules.
"There is a strong case for us to apply the same principles
to the governance of structural reforms as we do to fiscal
governance," he said. "The essential cohesion of the union
depends on it."
Draghi said structural reforms were fundamental to reaping
the benefits of the ECB's recent monetary policy decisions to
expand bank credit.
"But for firms, companies to access this credit they must be
in a condition to work. If it takes nine months to open a new
business and then once it's opened, it's overwhelmed by
taxation, it's very hard for this business to ask for credit,"
Draghi added in a departure from his speech.
The return of market confidence in the euro area stemmed in
good part from the efforts made by some countries to shape up
their economies after the euro zone crisis took hold, he said.
Establishing rules on structural reforms at a European level
could also help governments implement them, he said.
The experience of the International Monetary Fund had shown
that, with discipline imposed by supranational bodies, "the
debate can be framed not in terms of whether, but in terms of
how reform needs to take place."
European governments are not powerful enough individually to
be able to fully exercise their sovereignty alone, Draghi said.
"To serve their purpose, they have to learn to govern
together; they have to learn to be sovereign together so as
respond to their citizens' needs," he added. "Those needs today
are growth and job creation."
ECB COUNCIL UNANIMOUS
Turning to ECB monetary policy, Draghi said threats to price
stability in the euro zone stemmed from changes in energy and
food prices, relative price adjustment in stressed countries,
exchange rate behaviour, weak demand and high unemployment.
He added that "those threats are real and to cope with them
the Governing Council is determined to keep the monetary policy
stance accommodative for an extended period of time."
To breathe life into a sluggish euro zone, the ECB cut
interest rates to record lows in June and introduced a series of
measures to pump money into the economy.
Euro zone inflation is running at 0.5 percent, far below the
ECB's target of just under 2 percent. The ECB expects the new
measures to help get inflation closer to the target.
Draghi reiterated that the ECB Governing Council was united
in its willingness to begin quantitative easing - essentially
creating money to buy government or private debt from banks to
keep borrowing costs low and boost spending - if inflation
headed lower still.
(Writing by Paul Carrel; Editing by Larry King and Hugh Lawson)