European Central Bank President Mario Draghi said Wednesday a plan for reform of the 19-nation eurozone agreed by Paris and Berlin this week was “encouraging” although “vague”.
“The recent document produced by France and Germany is to be welcomed, it's an encouraging step… and it's an important step,” Draghi told a central banking conference in Portugal.
While “vague” on detail, “it's the first time we are having a proposal by governments” to overhaul the bloc, he added in comments livestreamed on the ECB website.
Chancellor Angela Merkel of Germany and French President Emmanuel Macron met outside Berlin Tuesday, agreeing a slate of reform ideas between the two nations that form the EU's traditional “motor”.
Macron said the budget plan agreed Tuesday would fund investment in the bloc, and go towards helping poorer members, allowing the eurozone to “respond to the… divergences between our economies”.
Other reforms targeted by Berlin and Paris are expanding the remit of the European Stability Mechanism (ESM) — the firefighter for eurozone countries with serious debt problems — harmonising corporate taxes in the bloc and introducing a digital tax by the end of 2018.
Likely anticipating tough negotiations with other eurozone governments at a Brussels summit next week, the two leaders left open details including the size, sources of funding and management of the planned budget.
“When (a proposal) is too detailed, that can be counter-productive,” noted Macron.
'Much work needed'
Draghi agreed Wednesday that “the important thing… is that not necessarily a specific instrument is being designed, presented and defined, but it's an approach, it's a sense that in the future we have to work to deepen the monetary union”.
ECB chiefs have long called for politicians to do their part in shoring up the eurozone against economic shocks.
Action by governments would take some of the pressure off the Frankfurt institution, widely credited with saving the single currency with massive interventions in the wake of the financial crisis.
Nevertheless, political weakness in Paris and reluctance among Germans to stump up for other countries they see as less thrifty meant the political stars remained unaligned for years.
“We had proposals by the (European) Commission, we had proposals in the famous five presidents' report” issued by the European institutions including the ECB in 2015, Draghi noted, “but they were not governments' proposals”.
“Much work will be needed” to hammer the budget into shape, Draghi warned, adding that eurozone reform was vital to withstand any future downturn.
“We cannot disentangle what will be the policy response in front of a — so far hypothetical — big recession in the euro area from the question of the reform, of the deepening of the monetary union,” he said.