The president of the European Central Bank (ECB), Mario Draghi, has said that he has “no doubts” of the euro’s ability to withstand the current financial crisis plaguing the eurozone.
The ECB chief said that he believed of the currency’s “permanence” while speaking to the European Parliament’s Committee on Economic and Monetary Affairs, where he was questioned about his statements concerning a eurozone-breakup.
However, his statement came as the European Central Bank issued fresh warnings that risks to the eurozone’s stability had increased.
Its bi-annual report, called the Financial Stability Report, said that the worst case scenario is a return to global recession.
The ECB also said that there is a major risk of two large banks defaulting within the next year, and that some eurozone banks have become dependent on ECB funds. These banks are predicted to face “significant challenges” within the year, according to the Financial Stability Report.
The ECB has also attacked politicians for their slow response to the crisis, which they said has made it worse.
Despite these ECB accusations in its report, the Bank’s head said that the most important step towards ending the crisis is trust returning to the eurozone.
He also warned against countries leaving the eurozone, as he said they would find themselves in a “much weaker position” after creating “a big inflation.”
Draghi called the euro irreversible and strong, saying that the shaky perception surrounding the currency stems from what he calls “morbid speculation” of what-ifs.
In his speech to the European Parliament’s economic committee, Draghi also called for eurozone heads to strengthen the European Financial Stability Facility (also called the EFSF, or eurozone bailout fund) and the European Stability Mechanism (ESM).
The primary task of the European Central Bank is to safeguard price stability, said Draghi.
This is a response to the growing pressure for the ECB to print more money, which would help governments repay their debts. Eurozone leader France has been among those calling for this type of solution, saying the central bank should become a lender of last resort.
However, the bank has refused to do so thus far, saying its job is regulatory and that it is not the ECB’s place to put the finances of every eurozone government in order.
Draghi said that the European Union treaty “forbids monetary financing of states” by the ECB, and that he will see his organisation stick to these terms.