National governments in the euro zone need to redouble their reform efforts to create a "genuine" economic union, ECB Mario Draghi wrote in a German magazine published on Saturday after the European Central Bank's bond-buying programme was unveiled. In an advance text of a contribution for the WirtschaftsWoche magazine, Draghi wrote the euro zone's political union needs to be deepened. He said reforms were needed to raise competition, cut bureaucracy and improve labour market flexibility.
"By requiring governments in an economic union to undertake structural reforms, they give credibility (to the idea) that they can actually overcome their debts through growth," Draghi wrote. The ECB took launched a government bond-buying programme on Thursday that will pump hundreds of billions in new money into a sagging euro zone economy. The ECB will buy sovereign debt, despite opposition from the Bundesbank and concerns in Berlin it could let spendthrift countries to slacken economic reforms.
Combined with existing schemes to buy private debt and funnel hundreds of billions of euros in cheap loans to banks, the new quantitative easing programme will release 60 billion euros ($68 billion) a month into the economy. Draghi, who had worked hard to prepare the ground for QE in Germany, did not expressly defend the ECB's decision in his WirtschaftsWoche contribution, according to the advance text. But he urged euro zone countries to do their part.
"Every member must be in the position to take advantage of comparative advantages in the common market in order to attract capital and create jobs," he wrote. "For that there is a need for structural reforms that promote competition, dismantle bureaucracy and increase the adjustment ability of labour markets."
Draghi said that in an economic union there is, nevertheless, a clear common interest. "That's why there are weighty arguments that speak in favour of jointly exercising sovereignty in this area - in the framework of a genuine economic union." A deepening of financial market integration would make possible a better sharing of private sector risk, he said. "Risk sharing, however, first requires a deepening of the capital markets, especially the equity markets," Draghi wrote. "That's why we have to make quick progress with the capital markets union."