March 23rd 2012 1:02 PM in Economy
European Central Bank President Mario Draghi said he was against any suggestion of Greece leaving the euro zone because that would not solve the country’s woes and would lead to higher inflation as well as instability in Greece.
In an interview with Germany’s Bild newspaper to appear on Friday, Draghi also said he was opposed to the idea of launching eurobonds and he spoke out against a “transfer union” in the euro zone in which the fiscally stronger countries support their weaker counterparts.
“An exit and the possibility of devaluing its currency wouldn’t improve anything,” Draghi said, according to an advance of the interview released on Thursday. “The pressure to reform would not let up. But on the other hand higher inflation and instability would be the result of an exit – for the foreseeable future no one would lend Greece the necessary money.”
Draghi said that in order to restore their competitiveness Greeks are dealing with declines in their standards of living.
“It is precisely this loss of prosperity that they are now doing across the board wage cuts,” Draghi said. “But that is always much easier to do inside the euro zone than outside it.”
Draghi said he was against eurobonds because they would run counter to the interests of taxpayers in Europe. He said it was “too early” for eurobonds.
“In general, if we want to protect taxpayers’ money, then the eurozone cannot be turned into a transfer union in which one or two countries pay while the rest spend the money and the whole thing is financed with eurobonds. That cannot be allowed to happen.”
He added: “That’s why the new fiscal pact for the euro states is the right way to go and that’s why it would be too early for eurobonds.”
Without the pressure of the markets and the Germans, then many of the advances in various eurozone countries would not have been made, Draghi said.
Draghi said he believed Greece would be able to get out of the downward spiral if it implements the important reforms passed by parliament and he said political stability would help.
“To overcome the crisis, Greece needs a stable political environment,” he said.
(Reporting By Erik Kirschbaum; Editing by Diane Craft)