ECB's Draghi warns countries to reform as clouds gather over euro zone

Thu Nov 27, 2014 10:02am EST
 
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By Jussi Rosendahl and Sarah White

HELSINKI/ MADRID (Reuters) - Failure to reform and shield weaker members threatens to divide the euro zone, the head of the European Central Bank warned on Thursday, amid fresh signs the currency bloc's economy is losing speed.

Delivering a blunt message to political leaders, Mario Draghi urged the 18 countries that share the single currency to consider ways to support struggling members, warning of the perils should fears that some might quit the euro be revived.

"Lack of structural reforms raises the specter of permanent economic divergence between members," Draghi told an audience at the University of Helsinki, choosing unusually frank language.

"And insofar as this threatens the essential cohesion of the Union, this has potentially damaging consequences for all."

Draghi's remarks were not limited to reforms in individual countries but also encouraged a rethink of a basic principle underlying the fractious currency alliance -- that strong countries are not obliged to help weak ones.

His comments came as the economic clouds over the region darkened. Lending in the euro zone shrivelled further in October while price inflation, a key yardstick of economic health, is very low.

Annual price inflation in Germany, the euro zone's biggest economy by far, slowed to 0.5 percent in November, its lowest in nearly five years. Spanish consumer prices also dropped for the fifth month running.

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Mario Draghi, President of the European Central Bank (ECB) delivers his speech at the European Banking Congress in the Old Opera house in Frankfurt, November 21, 2014. REUTERS/Kai Pfaffenbach