FRANKFURT, Germany – The setup of the 17-country euro currency union is unsustainable, the head of the European Central Bank has told EU leaders. He warned that they must quickly come up with a broad vision for the future to get the bloc through the current financial crisis.

Mario Draghi said Thursday that the crisis had exposed the inadequacy of the financial and economic framework set up for the euro monetary union launched in 1999.

“That configuration that we had with us by and large for 10 years — which was considered sustainable, I should add, in a perhaps myopic way — has been shown to be unsustainable unless further steps are taken,” he said in response to questions from Europe’s Parliament.

Draghi said the central bank had done what it could to fight the 2½-year-old debt crisis by reducing interest rates and giving (EURO)1 trillion ($1.2 trillion) in emergency loans to banks. But it was now up to governments to chart a course ahead by reducing deficits, carrying out sweeping reforms to spur growth and by strengthening the euro’s basic institutions.

The ECB cannot “fill the vacuum of the lack of action by national governments” in those areas, Draghi said. He said the next step “is for our leaders to clarify what is the vision … what is the euro going to look like a certain number of years from now. The sooner this has been specified, the better it is.”

The euro was set up as a single currency with one central bank, the ECB, to issue the currency and set interest rates. But the different national governments continued to independently determine their budgets and manage their widely different economies. The currency union was unable to prevent some countries from running up unsustainable debt burdens as their economies lagged behind with excessive business costs and economic imbalances such as trade deficits.

 

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