PARIS (MNI) – Enhancing the competitiveness of individual Eurozone
economies in a key factor in assuring the stability of monetary union,
European Central Bank President Mario Draghi said Friday.

The ECB has made an important contribution to stability through its
monetary policy and non-standard measures, Draghi told a conference
here, citing the impact of the announcement of the OMT bond-buying
program in reducing cross-border interest rate spreads.

But the ECB’s “determination” is not enough, he stressed, calling
on governments to advance toward stronger financial, fiscal and
political union with a collective commitment to reform governance.

These are not short-term objectives “but they are urgent,” Draghi
said. “We must accelerate integration at the European level.”

While Eurozone exports have held up fairly well, contributing to a
near external balance over time, this overall balance masked huge
internal imbalances, with deficits of up to 15% and surpluses of 7% that
were “completely unsustainable,” he noted.

The economic crisis revealed that “we were living in a fairy
world,” the ECB chief quipped. Such large imbalances can become
fundamental matter for stability, since “a union of sovereign states can
become fragile” if some members are permanent creditors and others
permanent debtors.

Each government must assure that internal conditions exist to allow
productive firms to thrive and contribute to investment, exports and job
creation, Draghi said.

Much has already been done to reduce unit labor costs and shift
activity toward high-value products, he said, citing Greece, Spain and
Portugal in particular. But competitiveness is still lacking in many
service sectors, and high profit margins of some firms highlight a lack
of price flexibility, he said.

Some countries still need a more growth-friendly business
environment and must make full use of their labor force potential by
reducing product and labor market rigidities to allow labor skills to be
profitably employed in competitive firms, he said, welcoming the new
focus on competitiveness in France.

Speaking on the same panel, International Monetary Fund Managing
Director Christine Lagarde said that establishing a real banking union
in the Eurozone was a “top priority.”

Eurozone countries “must rapidly agree” on the details of a banking
union because it is the best way to break the negative feedback loop
between weak public finances and weak banks, she said.

On the economy, Lagarde said the correction of Eurozone imbalances
has begun but is far from over, and that the overall economy remains
fragile.

–Paris newsroom +331 4271 5540; Email: paris@mni-news.com

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