ITALIAN CENTRAL bank chief Mario Draghi has played down the scope for a special funding initiative for Ireland’s crippled banks as he prepares to take charge in the autumn of the European Central Bank.
Mr Draghi is the only nominee to succeed Jean-Claude Trichet and EU leaders are expected to endorse his candidacy at a summit meeting next week. His nomination has already been approved by euro zone finance ministers and by the ECB governing council, of which he is a member.
Addressing MEPs in Brussels yesterday, Mr Draghi made it clear that he shared Mr Trichet’s opposition to debt restructuring by Greece and wants to wind down the bank’s “non-standard” measures to support the financial sector in the euro zone.
Amid a deepening rift with Germany, Mr Draghi indicated that he would not be changing the ECB’s policies on Greece. “The ECB is not in favour of restructuring or haircuts, we should exclude all concepts that are not purely voluntary or that have any element of compulsion,” he said.
In line with other senior ECB figures, he said the bank opposes any compulsory scheme to reduce the burden of Greece’s sovereign debt. However, he gave tacit backing to a scheme in which existing creditors would voluntarily renew or roll over existing debt when it matures.
Although the Frankfurt-based institution came close this spring to agreeing a medium-term funding plan for Irish banks, Mr Draghi told a European Parliament committee that such a scheme might compromise the ECB’s core mandate to control inflation.
With Ireland’s banks heavily dependent on emergency short-term ECB loans, the Government had argued when advancing its rescue plan for the sector that the provision of medium-term loans would strengthen the recovery effort. A mooted ECB scheme did not proceed, although the bank did agree to waive its collateral rules for Irish banks.
Mr Draghi signalled that the ECB’s policy on this is unlikely to change under his leadership. Any such scheme for Irish banks would amount to a “selective policy”, which would be in conflict with the ECB’s objective of promoting price stability, he told MEPs.
“We would be issuing liquidity no matter what price expectations would be,” he said. “If we do it for one country, why not do it for other countries that are in a similar situation, and if we do it for all countries we don’t run monetary policy any more.”
His appearance in the parliament came as Mr Trichet discussed the Greek debt crisis at an emergency meeting of euro zone finance ministers in Brussels.
Echoing recent remarks by a succession of top-ranking ECB figures, he said the cost of a default would exceed the benefits and added that a default would not address the root causes of the crisis.
“There would still be a primary deficit that would need to be financed after the default.”