The Eurozone is on track to record a recovery in the second half of next year despite a possible short-term adverse impact from the budget consolidation process, said Mario Draghi, President of the European Central Bank (ECB), on Friday.
“We have not yet emerged from the crisis,” Draghi told Radio Europe 1. “For most of the Eurozone, recovery will certainly begin in the second half of 2013,” he added.
“It is true that budget consolidation brings a short-term decline in activity, but it is unavoidable,” emphasized the ECB chief in Paris, where he is currently participating in a conference alongside other senior financial officials.
Eurozone governments should expedite the establishment of a banking union that must encompass all banks to avoid fragmentation of the sector.
The German government has repeatedly emphasized that the single banking supervision under the ECB should only apply to the largest banks in the Eurozone.
Deeper integration requires member countries to cede more sovereignty and implement parallel structural reforms to liberalize the services and labor markets, particularly in France and Italy, Draghi added.
Standard & Poor’s downgraded the ratings of six Eurozone countries from the highest level of ‘AAA’ in January, and Moody’s downgraded France’s rating by one level to ‘Aa1’ this month.
Although it has not directly affected borrowing costs, the downgrade is a signal to governments that they must take seriously, the ECB chief stated.
