From monetary union to "banking union". This is what Eurozone countries need to strengthen and limit the risk of contagion. This was stated by the president of the European Central Bank (ECB), Mario Draghi, heard in the Committee on Economic and Monetary Affairs al European Parliament in Brussels. The European banking union is based on three pillars, Draghi explained, “un European deposit guarantee scheme, a European resolution fund and stronger centralization of banking supervision” at the EU level. And as the Bankia crisis demonstrates, "it is easier to manage the recapitalization needs of banks centrally" rather than each one for himself.
Draghi, presenting the first annual report of the European Systemic Risk Board (Esrb), urged EU leaders to "clarify their vision" of the euro for the next 10 years, and to "make it concrete" starting with the banking union. “We are in the middle of a ford in a river with a very strong current, and we cannot see the bank on the other side because of the fog”, explained the president of the ECB. Clarifying the vision for the euro over the next ten years could "clear the fog, even if the current of the river remains strong", Draghi said again, continuing with the metaphor. But especially at a time like this, in which "uncertainty and volatility" has returned to the markets, the main challenge for the 17 countries of the single currency is "limiting the risk of contagion".
In fact, the game is still to be played and for Europe “the main challenges of this crisis continue”. In the countries of the euro area, the priority is "avoiding contagion" and "'promoting a strategy that supports growth and at the same time consolidates public finances".
But above all it is further centralization of banking supervision is needed, especially to manage the crises of institutions at systemic risk. Indeed "in the management of some financial emergencies", scolds Draghi, "in Europe the importance of the problem has been underestimated and this is the worst way of doing things, which in the end are done but at higher costs". The case of Bankia confirms that when faced with a recapitalization problem, the individual players, governments and national supervisory authorities initially underestimate the situation.
Still referring to the Spanish case, Draghi assures that the ECB has already done a lot and quickly to mitigate the liquidity crisis of the banks, but "it cannot do more to eliminate the causes of the lack of credit", he reiterated. Frankfurt "will continue to provide liquidity to solvent banks" in the Eurozone to avoid "bank run episodes", but "it cannot replace governments in tackling the crisis, in which the debt of some countries is no longer perceived as sustainable". It is therefore up to individual governments to resolve the situation through structural reforms.
Read Mario Draghi's speech in full
