EUROPEAN CENTRAL Bank chief Mario Draghi called on EU leaders to follow the stability treaty with a new pact to promote economic growth, a suggestion immediately endorsed by German chancellor Angela Merkel.
Mr Draghi maintained his highly cautious stance on Ireland’s push to restructure the Anglo Irish Bank promissory notes, saying there was no change for the moment in the bank’s policy.
His call for a growth pact comes as French Socialist leader François Hollande campaigned to renegotiate the treaty in favour of growth-oriented policies if he succeeds in ousting Nicolas Sarkozy in the presidential election. Dr Merkel, by contrast, has insisted the solution to the debt crisis primarily lies in fiscal rectitude. However, she seized the opportunity yesterday to support Mr Draghi.
“We’ve had a fiscal compact,” Mr Draghi told a committee of MEPs in Brussels. “Right now what is most present in my mind is to have a growth compact.”
While accepting that Europe has not yet seen the benefit of fiscal consolidation, he said it was important to continue. “We are just in the middle of the river that we are crossing. The only answer is to persevere.” Hours later in Berlin, Dr Merkel said a sustainable fiscal policy was a necessary but not sufficient method of overcoming the crisis and said she accepted growth was also required. “We need growth in the form of sustainable initiatives, not stimulus programmes which would increase debt, but growth in the form of structural reforms, as ECB president Mario Draghi said today,” the chancellor said.
Mr Draghi’s appearance at a parliamentary hearing followed the collapse of the Dutch government and came amid renewed tension in debt markets due to uncertainty about Spain. In a new report last night, the IMF called on Spain to “continue and deepen” its financial sector reform strategy. Mr Draghi offered no comment on any new ECB initiatives to tackle the crisis but expressed concern about “downside risks” and said the latest data were mixed and “highlight prevailing uncertainty”. At the same time, he offered no new insight into the ECB’s stance on Ireland’s campaign to restructure the Anglo notes. “Whether the ECB plans to do anything about the existing terms of the contract, the answer is no, the existing terms of the contract are the terms of the contract,” he said.
“We have undertaken certain steps. We will continue to reflect on this issue with a forthcoming attitude. Under the present time, we have these terms of the contract.”
The ECB saw that Ireland was strongly committed to the policies set out in the EU/IMF rescue plan, he said. “Nonetheless, challenges remain and the restructuring of the Irish banking sector needs to be completed.”
Minister for Public Expenditure Brendan Howlin declined to respond to Mr Draghi’s comments and said the Government continues to engage with the troika “on a range of issues that involve returning Irish economic sovereignty”.
“We’ve made significant progress in our first year in our six formal interactions and our many informal ones and we’ll continue to make progress until we get back into a position where we can fund ourselves in a normal way through markets,” said Mr Howlin.
With the benefit of the ECB’s €1 trillion cheap three-year loan scheme for banks widely held to have dissipated, Mr Draghi offered no sign of any new drive to boost confidence in the euro zone. “Should we fund the banks to the extent that they can buy any amount of government bond issues? The answer is no,” he said.
“Now, the ball is entirely, squarely in the court of governments and banks.”
