European Central Bank President Mario Draghi said on Friday that as Europe continues its economic recovery, the region needs to “reduce fragmentation” and stand in unity in implementing financial reforms.
“To achieve this, it is essential that we do not retreat into purely national perspectives, with a narrow view of our interest,” Draghi said in prepared remarks at the European Banking Congress in Germany. “We must keep our European perspective – and stand up for our common interests.”
Draghi said that monetary policy involving a single currency “will always have different effects in different places,” but he said the ECB’s mandate is to act in the interest of the entire euro zone, thereby making “the best contribution to prosperity for European society at large.”
“Starting with the ECB’s monetary policy, our mandate is inherently European – it is to maintain price stability for the euro area as a whole,” Draghi said. “And this mandate is symmetric; don’t forget that price stability works in both directions. We need to act as much when there is a risk that inflation in the medium term might become too low as well as too high.”
Draghi addressed concerns that low interest rates are cutting into savings and creating risks to financial stability, as well as reducing incentives for government reform.
“If we raised rates, we would further depress the economy, people would lose their jobs and then their savings would be lower for longer,” Draghi said. “By keeping interest rates at a level that supports the recovery, we should see higher interest rates for savers going forward… If we do see low interest rates creating localized risks, then local tools should be used to address them. In particular, national authorities should make full use of macro-prudential tools that they have available…[and] to maintain the right incentives for economic policies, countries need to strengthen their frameworks for economic governance. Important steps to strengthen budgetary discipline have already been undertaken. But several countries are further behind in implementing structural reforms. It is therefore high time to bring this area under closer European governance.”
Draghi also stressed the importance of creating a banking union—the Single Supervisory mechanism, which will establish a regulatory mechanism for Europe as a whole.
“The SSM offers a tremendous opportunity to move from different national approaches to the treatment of banks to a genuinely European perspective,” Draghi said. “That is, to take collective responsibility for our banks consistent with the single financial market in which they operate… A robust SRM would encompass all banks established in member states participating in the SSM. It would have at its center a strong and independent single resolution authority that can act evenly across countries and take decisions in the European interest. And it would have adequate powers, tools and financial resources to resolve institutions swiftly and effectively.”