Draghi Says There’s No ‘Savior’ for Countries That Won’t Act

European Central Bank President Mario Draghi said there is no “external savior” for countries that don’t implement structural reforms to restore confidence to debt markets.

“There is no external savior for a country that doesn’t want to save itself,” Draghi said in a speech in Berlin today. “I will never tire of saying the first response should come from the countries.”

The ECB is buying the bonds of debt-strapped nations such as Italy and Spain after they agreed to implement austerity measures to improve their finances. Draghi nevertheless reiterated today that the ECB’s bond program is “neither eternal nor infinite.”

He said an “unavoidable” short-term economic contraction in the euro area may be mitigated by a return of confidence if governments implement budget consolidation plans.

“In the medium term, sustainable growth can be achieved only by undertaking deep structural reforms that have been procrastinated for too long,” he said.

Bank Measures

While the ECB has pushed back against calls for it to step up its bond purchases, Draghi said measures taken last week to give banks greater access to liquidity will soon be felt.

On Dec. 8, the ECB established refinancing operations with a maturity of three years, allowed banks to use their own loans as collateral, and cut the required reserves ratio to 1 percent from 2 percent.

“The current package should be felt tangibly in the financial sector and the real economy over the coming months,” Draghi said.

He said banks face “headwinds” as they try to meet new Europe-wide capital ratios.

“The plan to strengthen their capital bases is an attempt to reinforce their standing in financial markets, but this is not an easy process,” he said. “Raising capital levels is expensive in a depressed market and faces resistance from shareholders. Selling assets is less preferable and curtailing credit to the real economy is even worse.”

Banks should consider restraining dividends and ad hoc compensation to strengthen buffers, Draghi said.