Mario Draghi's plot for eurozone countries to lose even more sovereignty unveiled

The former President of the European Central Bank (ECB), Mario Draghi, was sworn-in as Italy’s next Prime Minister in early February. Among his first major tasks are to accelerate the vaccination programme and rescue the economy from its worst recession since World War 2. He also has a major role to play in Europe.

Senior writer at Barron’s Group, Pierre Briançon, wrote on Twitter: “Draghi as Italian Prime Minister does not only change Italy, it could also upset the EU’s comfy balance of power, based for too long on the Franco-German duo.

“A third heavyweight around the leaders’ table.

“Macron and Merkel (and her successor) will have to deal with an influential voice, whose competence in economic and monetary matters dwarfs theirs (to say the least) and whose international aura and prestige at least equals their own.

“Should make for interesting intra-EU dynamics.”

According to the Financial Times Europe editor Ben Hall, French President Emmanuel Macron is thrilled about having a new “powerful and credible advocate of closer European integration” just at the time when Germany prepares for a change in leadership.

He wrote: “When Angela Merkel bows out as German Chancellor, Draghi and Macron could become Europe’s new power couple.”

It is expected Mr Draghi could further push for a fiscal union – particularly given his time at the ECB.

In 2012, at the height of the eurozone crisis, Mr Draghi had already told eurozone leaders they should have accepted more transfer of powers.

During a meeting of the eurozone’s central bank governing council, Mr Draghi explained that governments had to stick to tighter budgets, while reforming labour markets, increasing competition, re-balancing employment towards young people.

He said: “I can understand the anger of young people, of poor and jobless young people.

“I can understand it very well.

“The answer we can give as policy makers is that the policies suggested or implemented are the policies we are convinced to be the right ones.”

Also part of his vision of a “growth compact,” Mr Draghi backed calls for a boost in the resources of the European Investment Bank and said EU funds needed to be “redirected” to low-income areas.

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He added: “But thirdly and most importantly is that we collectively have to specify a path for the euro. How do we see ourselves in 10 years from now… We want to have a fiscal union?

“We have to accept the delegation of fiscal sovereignty from national to some form of central [government].”

Despite Mr Draghi’s comments, eurozone leaders never got round to establishing a fully-fledged fiscal union.

However, in October, German Finance Minister Olaf Scholz said Brussels was taking a step towards a fiscal union with its plans to recover from the coronavirus pandemic – which involve the European Commission borrowing in financial markets.

Mr Scholz told an interparliamentary conference on stability, economic coordination and governance in Brussels: “We are moving towards fiscal union, a major step forward in the financial capacity and sovereignty of the EU.”

To support the bloc’s economy, the EU has announced a €750billion (£678billion) recovery fund.

He added: “Markets have confidence in European policies and in the development of European economies.

“We should carry on with this course.”

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Europe’s economic pain is expected to worsen before it gets better, potentially boosting the popularity of populist leaders and the need for more action from the European Central Bank, analysts have warned.

While the International Monetary Fund upgraded its global growth forecasts at the end of January, it said the outlook for the eurozone had deteriorated.

The Fund cut its growth expectations for the region by one percentage point to 4.2 percent this year.

Deficits in France, Italy and Spain are all on track to surpass 10 percent, above even the highs seen in the sovereign debt crisis.

According to estimates from the ECB, the eurozone economy could have contracted by more than seven percent in 2020.

Erik Nielsen, group chief economist at UniCredit, told CNBC’s Squawk Box Europe: “Europe is in a deep hole.

“The pandemic is very uncertain, the rollout of the vaccine is frankly disappointing in Europe and therefore the risk of a deeper hole is there.”