FRANKFURT (MNI) – Introducing common eurobonds does not make sense
before the Eurozone has a shared tax and budgetary policy, European
Central Bank Governing Council member Mario Draghi said in an interview
released Monday.

There is some overshooting taking place in sovereign bond markets,
the head of Italy’s central bank, considered a top possibility to take
over the helm of the ECB at the end of October, told Germany’s
Frankfurter Allgemeine Zeitung.

“Eurobonds could make sense, if Europe were not only a currency
union, but also a union with a shared tax and budget policy,” he
reasoned.

“We are, however, not a tax and budget union. Because at the moment
it is not so that citizens of a country are ready to pay taxes to
finance another state.”

Asked if there was a crisis of trust in the euro, Draghi replied,
“Not at all. The euro is a success story,” which has brought stability
to countries such as his own.

Queried if markets were now displaying exaggerated risk aversion in
the sovereign bond market, Draghi affirmed that indeed there “now is an
effect of overshooting, just as before there was undershooting. The
difference is that the low risk premia do not disturb anyone until it is
too late. With exaggerations on the upside, everyone is immediately
concerned.”

Draghi rejected the notion that a larger rescue fund would be a
panacea for all future crises. “It is wrong if the expectation is
aroused that the fund definitely will have a gigantic size and that,
thanks to this fund, there will never again be crises in Europe.”

“If we arouse these expectations, then there will be
disappointments and, thus, instability. The fund must have a clearly
outlined purpose and cannot finance any crisis and any behavior,” he
reasoned.

Asked if there was a crisis of trust in the euro, Draghi replied,
“not at all. The euro is a success story,” which has brought stability
to countries such as his own.

“The culture of stability is today an integral part of Italy’s
economic life and in all of the Eurozone. It must be preserved because
there can only be sustainable growth on the basis of stability,” he
argued.

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–Frankfurt bureau, +49-69-720142, frankfurt@marketnews.com

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