European Central Bank President Mario Draghi on Thursday said the European integration now needs a "bold leap of political imagination" in order to survive.
The sovereign debt crisis has exposed serious weaknesses in the institutional framework, he said in a speech in Rome. In this context, the difficulties in finding common solutions are having a negative impact on market valuations.
"The extraordinary measures taken by the ECB have gained us time; they have preserved the functioning of monetary policy," he noted.
"If the governments of the Member States of the euro define jointly and irrevocably their vision of what the political and economic construct that supports the single currency will be and what the conditions to reach that goal together should be," it would be the most effective answer to the question on the future of euro ten years ahead, he said.
Draghi observed that the completion of the single market and the strengthening of competition are crucial for growth and employment.
Growth and fairness are closely connected, he said. Without growth the temptation to "circle our wagons" gains strength, and solidarity weakens. At the same time, absence of fairness will cause the economy to break up into multiple interest groups, no common good emerges as a result of social and economic interaction, and there are negative effects on the capacity to grow.
In a speech on Thursday in Poland, ECB Executive Member Jorg Asmussen said fiscal consolidation is a necessary pre-condition for sustainable growth. Europe needs both austerity and growth, he noted.
The ECB is moving on very thin ice as its actions increase inflationary risks in the euro area. A large injection of central bank liquidity could, in principle, give rise to inflationary risks.
The recent Long-Term Refinancing Operations are fully in line with ECB's guiding principle. But any assessment of the impact of the LTROs on the real economy would be premature at this stage, Asmussen said.
by RTT Staff Writer
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