Eurozone is ‘Unsustainable’ Warns Mario Draghi

The head of the European Central Bank hit out at the political paralysis gripping the region as he warned the eurozone’s set-up was “unsustainable”.

By , Chief business correspondent

8:26PM BST 31 May 2012

Mario Draghi said the central bank could not “fill the vacuum” left by member states’ lack of action as it was claimed the zone is on the point of “disintegration”.

Amid escalating talk of a potential bail-out for Spain, the president of the ECB said the central bank was powerless to stop the debt tornado. “It’s not our duty, it’s not in our mandate” to “fill the vacuum left by the lack of action by national governments on the fiscal front,” he said.

Luis de Guindos, Spain’s Economy Minister, urged Berlin to “assume its part” in restoring the health of the eurozone. He said: “The battle of the euro is being fought right now in Spain and Italy. The future of the euro is at stake in the next weeks.”

Christine Lagarde, the head of the International Monetary Fund, last night denied that an IMF bail-out of Spain was being prepared.

“There is no such plan. We have not received any request to that effect and we are not doing any work in relation to any financial support,” she said, following a meeting with Spain’s deputy prime minister, Soraya Saenz de Santamaria.

Olli Rehn, the EU’s top economic official, called for urgent action to “avoid a disintegration of the eurozone.” The economic affairs commissioner said that politicians had made progress but it had been “uneven and seemingly inefficient.”

Underling the fears gripping many investors, the FTSE closed down 7.5pc in May, suffering its worst month since February 2009 when the banking crisis was at its height.

A raft of poor economic data in America compounded fears for the eurozone and the global economy. US GDP expanded by just 1.9pc in the first quarter, rather than the 2.2pc first estimate, while jobless claims climbed.

The crisis raging in the Spanish regions and the country’s banks kept the country’s borrowing costs in the danger zone. The price of oil fell again although stockmarkets were calmer after Wednesday’s rout.

Italy’s prime minister Mario Monti warned of the “huge possibilities of contagion”. Ireland looked set to approve the Fiscal Pact in its referendum but in Greece the anti-austerity Syriza party took the lead in some polls.

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