European Central Bank (ECB) President Mario Draghi has reaffirmed that the euro is irreversible in a defense of the single currency against populists who reject it.
“L’euro e irrevocabile, the euro is irrevocable,” he said at the European Parliament on Monday, using both his native Italian and English. “Questo e il trattato, this is the treaty.”
Draghi has made the claim multiple times before, but the issue of whether and how a nation could leave the single currency returned to the fore after French presidential candidate Marine Le Pen said she would take France out of the euro if elected.
Even after Greece and its European partners stepped back from the brink of a split in the summer of 2015, the procedures for a euro exit remain undefined and the repercussions of such a move are near impossible to gauge.
The question of a euro exit has also flared in Italy, where the Five Star Movement — which is running close to the leading Democrat Party in polls — favors a referendum on membership.
In his testimony, Draghi declined to say what the cost would be for a nation that decided to leave the 19-nation bloc — a debate sparked by a Jan. 18 letter he sent to EU lawmakers Marco Valli and Marco Zanni.
“If a country were to leave the eurosystem, its national central bank’s claims on or liabilities to the ECB would need to be settled in full,” Draghi wrote.
Zanni said that response acknowledged that nations could leave.
“I wanted to bring up the issue of exit from the euro and how it can happen,” he said in an interview before the testimony. “Draghi has now clearly admitted that such an exit is possible and now there is need to have more clarity about the cost. I’m sure that in case of Italy’s exit from the euro benefits exceed costs.”
Leaving the euro would increase France’s debt-servicing costs by more than 30 billion euros (US$32 billion) a year, Banque de France Governor Francois Villeroy de Galhau wrote in an op-ed in Le Figaro.
In the European Parliament, Valli asked whether the “liabilities” that the ECB president referred to are the imbalances in the eurozone payment-settlement system, known as Target2. Such imbalances were seen by some commentators during the region’s sovereign-debt crisis as a sign of the unsustainable tension between debtor and creditor nations.
Draghi demurred.
“I cannot answer a question that is based on hypotheses, on assumptions which are not foreseen” by the EU treaties, he said. “What I could do is send you a written answer which compares our Target2 system with the [US] Federal Reserve-based system.”
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