The debt crisis in Greece, Ireland and Portugal could have "significant systemic effects" in the eurozone, Italy's central bank chief Mario Draghi, who is set to head up the European Central Bank, said on Tuesday. "In the eurozone, the sovereign debt crisis in three countries, which together represent six percent of the area's GDP, has the potential to exert significant systemic effects," Draghi said at a central bank conference.
"European economic and monetary union is facing its most difficult test since it was created," added Draghi, referring to Greece, Ireland and Portugal which have agreed bailout packages worth tens of billions of euros (dollars).
"European surveillance over national budget policies, which was weakened in the middle of the last decade on the initiative of the three biggest countries, showed itself wanting just when it was most essential," he said.
Had the European stability pact rules been respected to the letter, the ratio of public debt to gross domestic product on the eve of the crisis would have been 10 percentage points less in the eurozone, he said.
"There are no shortcuts," warned Draghi, calling on governments to rein in public finances.
"Financial support from other governments in the eurozone is needed for countries to proceed with corrections while being sheltered from the volatility on the markets. It is not a fiscal transfer between countries," he said.
Draghi said it was up to the ECB to "ensure price stability in the medium term". "Neither sovereign risks nor the pathological dependence of some banks on ECB financing can deflect from this task," he added.
A former economics professor and Goldman Sachs investment banker who has been overseeing a series of global financial reforms, Draghi has been anointed as the next European Central Bank chief to take over from Jean-Claude Trichet.
He is due to be formally appointed during a European Union summit in June.
Pointing to a slow recovery in Italy, Draghi said the government should focus on boosting growth by dealing with the problem of low productivity, a weak labour market and upgrade infrastructure and the education system.
The central bank governor said the government's target of reaching a balanced budget by 2014 was "appropriate" but warned against "uniform" budget cuts that could undermine an already weak recovery.
taken from http://www.breitbart.com/article.php?id=CNG.1fd0708a234708869809ecba5fc0c618.661&show_article=1
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