European Central Bank chief Mario Draghi hammers home need for closer Eurozone financial integration at the Bank of England’s Open Forum
Mario Draghi has used his speech at the Bank of England's Open Forum to underscore the need for the Eurozone to fully push on with its banking and capital market union.
He argues:
First, as the vast majority of money is issued by private banks – bank deposits – there can only be a single currency if there is a single banking system. For money to be truly one, it has to be truly fungible independent of its form and independent of its location. That requires stronger common governance of the banking sector in countries that share a currency, so that bank deposits inspire the same level of confidence wherever they are located.
This applies to Greece today. A €1000 bank deposit in a Greek bank is worth less than a €1000 bank deposit in, say, Spain.
Here’s his second reason:
Second, sharing a single currency heightens the degree of mutual vulnerability to which member countries are exposed. The potential spillovers of a breakdown of the market are much stronger, not least because countries do not have their own exchange rate to “bottle up” cross-border capital flows. National policymakers cannot therefore fully protect their citizens from financial instability without pooling more sovereignty over decision-making at the level of the market.
This, he explains, is the thinking behind the Single Supervisory Mechanism, which started just over a year ago. “A single supervisor, applying homogenous methodologies, internalises mutual trust,” he said, and would stop financial companies from hiding behind borders at the first signs of market trouble.
“The case is clear – I would say almost undeniable – for stronger common governance and deeper institutional integration," he said.