Draghi Defends Euro as Bastion Against ‘Illiberal' Regimes
A stack of ten euro banknotes is arranged with fifty and twenty euro banknotes for a photograph. (Photographer: Simon Dawson/Bloomberg)

Draghi Defends Euro as Bastion Against ‘Illiberal' Regimes

(Bloomberg) -- European Central Bank President Mario Draghi defended the results of two decades of European political and monetary integration against the return of “illiberal” policies and regimes.

Speaking in his native Italy, where a euro-skeptic populist government is openly flaunting European Union rules, Draghi listed the euro’s successes, while admitting that not all have benefited equally from it. He said that lower than expected prosperity in some countries was due to domestic policy choices and to an incomplete monetary union.

Draghi Defends Euro as Bastion Against ‘Illiberal' Regimes

The creation of the euro was an “exceptional,” even “anti-historical” response to a “century that had seen dictatorships, war and misery,” he said in a speech in Pisa at the Sant’Anna School of Advanced Studies commemorating the single currency’s 20th anniversary. In his remarks he didn’t make any reference to current monetary policy.

“‘The challenges that have arisen have become ever more global in nature and need to be tackled together, not alone,” he said. “This is even more true for Europeans, both at the level of their individual nations and for the continent as a whole: rich but relatively small; strategically exposed, militarily weak.”

Defense of Rights

Draghi’s last scheduled appearance for the year, came just two days after announcing the end of his flagship bond-buying program and with less than a year before the conclusion of his term. He refrained from triumphalism in marking the euro’s anniversary but pushed back against two common criticisms of the single currency leveled by European nationalist and anti-establishment movements, from Brexit Britain to France’s Yellow Vests.

Draghi said the euro is not an expression of the globalization process, but rather is a natural consequence of the creation of an integrated continental market, which has allowed relatively small European countries to remain competitive and defend their way of life in an increasingly interconnected world. He said the EU has protected people against the worst consequences of globalization, for example by strengthening common rule-making and protecting workers’ rights.

He also denied that the economic under-performance of some euro-area countries could be reversed by leaving the single currency and ignoring EU deficit rules.

Italy’s Woes

This message has a particular resonance in Italy where the government led by Giuseppe Conte is facing tensions with the EU over a budget plan that tests the bloc’s rules. While Italy is seeking to pacify the European Commission by offering a new lower deficit target for 2019, EU leaders and financial markets have continued to express concern over spending plans that could increase the country’s huge debt pile.

Draghi stressed that blaming Europe isn’t fair considering that Italy’s low growth “dates back a very long time before the euro.” He warned against nostalgia for a past that was not as rosy as some politicians like to remember.

“As the history of Italy has shown, monetary financing of government debt did not lead to real long-term benefits,” he said. “In the 1970s, maintaining a growth rate similar to its European peers required repeated devaluations. Inflation reached unsustainable levels and hit the most vulnerable in society.”

©2018 Bloomberg L.P.

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