Draghi warns he will not adjust ECB policy to protect the Italian budget

STEPHANIE LECOCQ

Mario Draghi, President of the European Central Bank (ECB) and Chair of the European Systemic Risk Board, attends a hearing of the European Parliament Committee on Economic and Monetary Affairs (ECON) in Brussels, Belgium, 29 May 2017.

Draghi warns he will not adjust ECB policy to protect the Italian budget


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The Head of the European Central Bank Mario Draghi abstained from explicit comments on the much-anticipated Italian budget on Monday.

Draghi urged for a focus on the facts rather than the rhetoric of the new Italian government, echoing the views expressed last week by the European Commissioner for economic and financial affairs Pierre Moscovici.

Italy will submit its 2019 budget draft in October. The government has announced it will introduce a 780 euro minimum income, rollback pension reforms and introduce a flat tax.

Finance Minister Giovanni Tria has offered repeated assurances of Italy’s commitment to the Euro but has also made clear the new government will not seek to narrow the 2018 budget deficit and has already increased the 2019 deficit target. However, there is no draft budget.

Draghi committed to stay the course and end the ECB’s bond-buying programme at the end of 2018. He made clear that Italy’s budget will not dictate ECB policy. “Our mission and our mandate are not aimed at protecting national budgets,” Draghi said.

As Italy has a 130 per cent debt-to-GDP ratio, Italy has been one of the biggest beneficiaries of the ECB’s bond-buying programme., which has reduced the cost of servicing its debt.  Draghi is committed to ending the programme, but says the policy will remain expansive for the foreseeable future.

Moreover, Draghi urges for more EU cohesion policy in view of global economic turmoil, noting that the eurozone would benefit from a mechanism that would allow the economy to “absorb shocks and reduce the risk of full-blown crises.”

In this scheme, Draghi was explicit in his support for institutional reforms, calling for a speedy “trilogue” between the European Commission, the European Parliament, and European Council on both the new role for the European Stability Mechanism and the Single Resolution Fund.

 

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