Draghi Says Euro Is Irreversible as Le Pen Urges French Exit

  • ECB president responds to questions at European Parliament
  • Says leaving single currency is not an option in EU law

Donovan: Market Concerns Are About Le Pen's Position

Mario Draghi reaffirmed that the euro is irreversible in a defense of the single currency against populists who reject it.

“L’euro e’ irrevocabile, the euro is irrevocable,” the European Central Bank president said at the European Parliament on Monday, using both his native Italian and English. “Questo e’ il trattato, this is the treaty.”

Draghi has made the claim multiple times before, but the issue of whether and how a country can leave the single currency returned to the fore after French presidential candidate Marine Le Pen said she would take France out of the euro if elected. Even after Greece and its European partners stepped back from the brink of a split in the summer of 2015, the procedures for a euro exit remain undefined and the repercussions of such a move are near impossible to gauge.

The question of a euro exit has also flared in Italy, where the Five Star Movement -- which is running close to the leading Democrat Party in polls -- favors a referendum on membership.

In his testimony, Draghi declined to say what the cost would be for a country that decided to leave the 19-nation bloc -- a debate sparked by a Jan. 18 letter he sent to European Union lawmakers Marco Valli and Marco Zanni.

“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,” Draghi wrote then. Zanni said that response acknowledged that countries can leave.

Target2 Imbalances

“I wanted to bring up the issue of exit from the euro and how it can happen,” he said in an interview before the testimony. “Draghi has now clearly admitted that such an exit is possible and now there is need to have more clarity about the cost. I’m sure that in case of Italy’s exit from the euro, benefits exceed costs.”

Leaving the euro would “threaten savings and jobs in France” and lead to a “to a rise in interest rates,” ECB Executive Board member Benoit Coeure said in an interview with Le Parisien on Tuesday. “It would be to choose impoverishment.”

His words were echoed by Governing Council member Francois Villeroy de Galhau, who wrote in an op-ed in Le Figaro that abandoning the single currency would increase France’s debt-servicing costs by over 30 billion euros ($32 billion) a year.

In the European Parliament, Valli asked whether the “liabilities” that Draghi referred to are the imbalances in the euro-area payment-settlement system, known as Target2. Such imbalances were seen by some commentators during the region’s sovereign debt crisis as a sign of the unsustainable tension between debtor and creditor countries. Draghi demurred.

“I cannot answer a question that is based on hypotheses, on assumptions which are not foreseen” by the EU treaties, he said. “What I could do is send you a written answer which compares our Target2 system with the Federal Reserve-based system.”

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