Central Banks

Thursday, March 22, 2012 - 19:00

ECB Draghi: Too Early For Eurobonds, Transfer Union Now

FRANKFURT (MNI) - The Eurozone must not turn into a transfer union financed by Eurobonds at the current juncture, European Central Bank President Mario Draghi said in an interview with German daily Bild Zeitung Thursday.

"The general rule is: If we want to protect tax-payers' money, the Eurozone must not turn into a transfer union in which one or two countries pay and the rest spends and all of this is financed by common Eurobonds. This must not be," Draghi told the tabloid.

Instead, the union must be based on mutual trust in the compliance of common rules, Draghi argued: "This is why a the new fiscal compact of euro-states is right and this is why it would be too early for Eurobonds."

Without pressure not only from markets but also from Germany, we might not have seen many of the recent necessary adjustment efforts in peripheral Eurozone countries, Draghi said.

Draghi reiterated his opposition to a Greek exit from the Eurozone but cautioned that any new government must stick to reform efforts to give the country a chance to escape the current downward spiral.

"An exit and the possibility to devalue its own currency would not improve anything [for Greece]. The reform pressures would not abate. At the same time, an exit would cause high inflation levels and instability for an indefinite period as nobody would lend Greece necessary funds," Draghi said.

Ahead of Greece's elections, Draghi sent a clear message to any possible new government not to deviate from the country's reform agenda.

"To overcome the crisis, Greece needs stable political conditions," Draghi stressed, noting that the parliament had decided numerous key reforms.

"If those are put into practice, the country has a chance to escape the current downward spiral," Draghi said.

Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com

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