The European Central Bank President Mario Draghi said Thursday that the bank cannot fix the turmoil in the currency bloc and urged Eurozone leaders to come up with a 'vision' for years ahead.
Speaking as the Chairman of the European Systemic Risk Board, Draghi called for centralization of financial sector regulations. Also, the central banker hinted that he supports the direct injection of capital into banks by the permanent rescue fund.
Draghi said the central bank cannot fill the policy vacuum. "Can the ECB fill the vacuum of lack of action by national governments on fiscal front" or on "the structural front," he said.
The recent banking crisis taught the lesson that the supervision of banks which has potential to risk the entire Eurozone financial system should be vested with a centralized authority, he told the European Parliament in Brussels.
Spain's lender Bankia requires EUR 19 billion capital injection, which is more than the available state aid for the banking sector. Draghi criticized the governments for underestimating the recapitalization requirement of banks.
He also pointed out that four Greek banks that were denied borrowing from the ECB were allowed access to funds over the recent weeks after recapitalization.
Further, Draghi said European leaders should clarify their vision for the region for the years ahead.
Yesterday, European Commission recommended that the Eurozone's permanent bailout fund must be given authority to directly recapitalize the troubled banks. Allowing direct bank recapitalization will serve as a link between banks and their national governments, the EU said.
The commission also sought to develop a 'banking union', which will be another step towards full economic and monetary union.
"People are actually working on finding ways that the ESM could be used to recapitalize banks," Draghi today said.
"The issue is not so much if ESM money could be used to recapitalise banks, but whether this could be done directly without having to go through governments."
by RTT Staff Writer
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