EUROPEAN Central Bank (ECB) president Mario Draghi yesterday warned eurozone leaders that current financial mechanisms are ‘unsustainable’.
Addressing the European Parliament, Draghi asked: ‘Can the ECB fill the vacuum of lack of action by national governments on fiscal growth? The answer is no.
‘The next step. . . is to clarify what is the vision a certain number of years from now. The sooner this is specified, the better it is. The financial crisis has heightened risk aversion in a dramatic way.’
He slammed the Spanish government for underestimating the scale of losses at the country’s fourth-largest bank, Bankia, and called for the regulation of Europe’s most important banks to be taken out of the hands of national supervisors.
Retail and corporate deposits in Spanish banks have dropped to the lowest level since the eurozone debt crisis started, according to the ECB.
Draghi told MEPs that, when confronted with a ‘dramatic need’ to rescue banks such as Bankia and the Belgian bank Dexia, national supervisors repeatedly underestimated the amount a rescue would cost.
Meanwhile, EU economics commissioner Olli Rehn said more austerity is needed if the eurozone is to avoid disintegration.
He told a conference: ‘We need a genuine stability culture and a much upgraded common capacity to contain common contagion. This is the case, at least if we want to avoid a disintegration of the eurozone and instead make the euro succeed.’
Rehn rejected a suggestion from EC president Jose Manuel Barroso at a news conference on Wednesday that tighter eurozone integration could include a banking union, a joint bank deposit guarantee scheme and euro area financial supervision.
This came after Spain’s ex-premier Felipe Gonzalez, the country’s elder statesman, warned: ‘We’re in a situation of total emergency, the worst crisis we have ever lived through.’ His warning came as the yields on Spanish ten-year bonds hit 6.7per cent, pushing the ‘risk premium’ over German Bunds to a post-euro high of 540 basis points. Madrid’s IBEX index of stocks fell by 2.6 per cent on Wednesday, the lowest since the dotcom collapse in 2003.
The 23.5bn euros rescue of crippled lender Bankia has meanwhile led to the abrupt resignation of central bank governor Miguel Angel Fernández Ordóñez. He testified to the Spanish senate that he had been gagged to avoid inflaming events as investors’ confidence in the country collapsed.
Trading in Asia followed the sharp falls in European and US markets on Wednesday.
The eurozone crisis was further sharpened by more bad news from Greece as figures showed that Greek retail sales volumes fell by 16.2 per cent in March compared with a year earlier. This followed February’s 12.9 per cent fall.
