Mario Draghi’s blueprint for leaving eurozone outlined in letter: ‘Settle bill first!’

ECB conference: Mario Draghi discusses policy stance

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Europe’s economic pain is expected to worsen before it gets better, potentially boosting the popularity of populist leaders and the need for more action from the European Central Bank (ECB), analysts have warned. While the International Monetary Fund upgraded its global growth forecasts at the end of January, it said the outlook for the eurozone had deteriorated. The Fund cut its growth expectations for the region by one percentage point to 4.2 percent this year.

Germany, France, Italy and Spain — the four largest economies in the euro area — all saw their growth cut for 2021.

According to estimates from the ECB, the eurozone economy could have contracted by more than seven percent in 2020.

Erik Nielsen, group chief economist at UniCredit, told CNBC’s Squawk Box Europe: “Europe is in a deep hole. The pandemic is very uncertain, the rollout of the vaccine is frankly disappointing in Europe and therefore the risk of a deeper hole is there.”

As many fear the gloomy outlook could mean the end of the eurozone, comments made by the former President of the ECB, Mario Draghi, on the possibility of the currency zone losing members, have resurfaced.

In 2017, there was a rise of anti-euro sentiment in Italy and other eurozone states, fuelled in part by Brexit.

In a letter to two Italian MEPs, Marco Zanni and Marco Valli, Mr Draghi claimed any country leaving the eurozone would need to settle its claims or debts with the bloc’s payments system before severing ties.

He wrote: “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.”

The threat of defaults on cross-border debts has often been credited as one element keeping the eurozone together throughout the financial crisis.

His comments soon came back to bite him, though.

A few months later, at the invitation of Dutch MPs, Mr Draghi visited the Dutch Parliament’s Finance Committee for an exchange of views.

FvD leader Thierry Baudet asked the banker whether or not the Netherlands would receive €100billion (£85bn) surpluses from the ECB should the country leave the euro.

As Mr Draghi said the Netherlands would not receive back the surplus money, Mr Baudet raised the letter he sent to Mr Zanni and Mr Valli.

Mr Baudet then asked: “As we, the Netherlands, now have a surplus of about €100billion, does this by your own words mean that if the Netherlands decides to leave the eurozone, which is one of the key points of my party’s programme, we would get back €100billion from the southern countries in the Eurozone according to your views?”

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Mr Draghi tried to avoid direct answering by suggesting that the euro is irrevocable according to the treaty and he would not like to speculate on a hypothetical situation that has no ground in the present treaty.

He also pointed out that the euro has been a success for the eurozone and especially for countries like the Netherlands.

Mr Baudet disagreed with Mr Draghi and snapped back by saying: “Just one point, you said you didn’t want to speculate about the possibility of the eurozone falling apart.

“But isn’t that precisely what you did in January when you were saying, ‘If Italy leaves, it will have to settle the bill’?

“You were actually speculating about the breaking up of the eurozone, and wouldn’t it be intellectually fair to have the same principles if the Netherlands decides to leave?

Mr Draghi replied: “In the European Parliament, I was asked the same question about that.

“I said one can have technical answers of all kinds but the point is the euro is irrevocable.

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“And I am not going to speculate on hypotheses that have no ground whatsoever.”

Mr Baudet said “we’ll see about that”, to which Mr Draghi added: “We will see about that, for sure.”

Mr Draghi became Italy’s Prime Minister last month.

Among his first major tasks are to accelerate the vaccination programme and rescue the economy from its worst recession since World War 2.

Last week, the former ECB President said his Italian government would launch a new economic package to support the country during the new COVID-19 lockdown measures.

The Prime Minister said he would boost support for struggling workers and businesses, as well as tripling the number of vaccines being administered daily during a new lockdown that will last until the first week of April.

He said: “More than a year after the beginning of the health emergency, we are unfortunately facing a new wave of contagions.

“The memory of what happened last spring is alive, and we will do everything to prevent it from happening again.”

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