European Central Bank President Mario Draghi has urged European governments to push on with reforms and banking union plans. Draghi added that the EU is more stable than a year ago, but challenges remain.
It is "imperative" that European leaders create a new banking union that would help ease the burden governments face with bailing out troubled banks, Draghi said in a speech on Thursday in London. The union, said Draghi, would cut the link between failing banks and government. He said that link has been a major driver in the three-year European debt crisis.
Proposed banking union
An agency, dubbed the "Single Resolution Mechanism," would force bank creditors and shareholders to bear the losses from busted banks, rather than making taxpayers shoulder the burden.
European leaders have already moved forward with creating a single bank supervisor under the European Central Bank (ECB), due to be in place by mid-2014. However, they have not yet agreed on how to proceed with the resolution mechanism.
A single deposit guarantee scheme, combined with the resolution mechanism, would form the backbone of Draghi's envisaged banking union.
Putting the ECB in charge of banking supervision would begin to "pave the way towards severing the link between banks and their respective sovereigns," Draghi said. "If we are successful in establishing an effective banking union – as I am convinced we will be – the benefits will be large, not only for euro area countries but for all EU members."
The banking union idea has run into opposition from Germany, the EU's biggest economy. Finance Minister Wolfgang Schäuble said that under the plan, the basic treaty governing the EU would require changes that could take years to implement. He has instead proposed a network among national banking authorities that could take on the issue in the interim.
More stable Europe
Draghi reiterated his position that more involvement from the EU was the solution to resolving the debt crisis, while calling on governments to take steps to improve their own finances.
"The answer to the crisis has not been less Europe but more Europe," Draghi said, adding: "To maintain and expand the productive capacity of our societies, national governments need to improve the structural functioning of their respective economies."
The ECB president also reflected on the state of the EU, announcing that "we can … safely say that our Economic Monetary Union is a more stable union today than it was a year ago."
Draghi said there had been a slight improvement in lending within the eurozone, but added "economic conditions in the euro area remain challenging."
dr/ch (AP, Reuters, dpa)