Eurozone governments must get their economies in order if the euro area is to recover from its long crisis, European Central Bank (ECB) President Mario Draghi said on Thursday.
Following the surprise ECB rate cut last week and the announcement of additional measures to ease monetary conditions in the 18 countries that share the euro, the onus was now on politicians, Draghi told a financial forum in Milan.
A copy of his speech was made available by the ECB in Frankfurt.
A policy mix involving monetary, fiscal and structural policies was needed “to jump-start the economic recovery in the euro area,” Draghi said.
“We are currently facing a set of conditions — low growth and low inflation, high debt and high unemployment — that can only be addressed by concerted action on both the demand and supply sides of the economy. This requires all actors — both at national and European level — to play their parts in line with their respective mandates as laid down in the EU treaties,” Draghi said.
A week ago, the ECB’s decision-making governing council voted to cut the bank’s key interest rates to new all-time lows to prevent the rot of deflation setting in the faltering eurozone economy.
It also promised to launch a program of asset purchases to inject cash into the economy.
However, that was not enough, Draghi said.
“No monetary stimulus, indeed no fiscal stimulus, can be successful unless accompanied by the right structural policies — policies that foster potential growth and instill confidence,” he said.
“We will not see a sustainable recovery” unless there was “a decisive rise in investment,” he said.
And in order to boost investment, structural reforms were needed, he said.
“The regulatory environment should be made more favorable to economic growth,” he said.
And companies needed to have access to more diversified sources of financing.
“The launch of a capital markets union could contribute to achieving this and, at the same time, help overcome the remaining fragmentation of financial markets,” he said.
Guntram Wolff, director of the Bruegel think tank in Brussels, said Draghi “doesn’t have any direct handle on the member states and on their structural and fiscal policies. All he can do is push them. That’s the problem — we are having a real coordination problem.”
And even if financially stronger countries are willing to spend more, it might not give the economy the push it needs.
“They need a fiscal plan at the EU level,’’ Wolff said. “I don’t think fiscal loosening at the national level will do the trick.”
EU rules restrain countries from borrowing excessive amounts of money to boost spending. That is a key condition to ensure stability of the shared currency. And Germany and the EU’s executive commission have pressed for countries that needed bailouts — Greece, Portugal, Ireland, Spain, Cyprus — to keep spending down in return for rescue loans. Yet those policies can choke off growth that is needed both to shrink debt and reduce unemployment.
A senior EU official said the finance ministers were to discuss the bloc’s fiscal policies yesterday.
Additional reporting by AP
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