European Central Bank (ECB) President Mario Draghi on Friday delivered a plea for maintaining trade liberalization, but acknowledged the widespread perception that lowered trade barriers had fueled inequality.
However, Draghi’s widely anticipated address to an annual gathering of global central bankers in Jackson Hole, Wyoming, made no mention of when the ECB may wind down its multitrillion-euro bond-buying stimulus program adopted in the wake of the 2008 financial crisis.
The decision not to discuss Europe’s “quantitative easing” policy saw the euro’s value spike against the US dollar, with the European currency up nearly 2.5 percent against the greenback following the release of Draghi’s remarks at 7pm GMT.
Both Draghi and US Federal Reserve Chair Janet Yellen skirted discussion of pressing policy matters in their remarks in Jackson Hole on Friday so as not to unsettle markets.
“After all the excitement about possible Draghi fireworks in Jackson Hole, the just delivered speech was an anti-climax, a non-starter,” Carsten Brzeski and Bert Colijn of ING Bank NV said in a research note. “The demand for an ECB game plan on tapering will only get stronger and Draghi will have to address it.”
Draghi said that without greater productivity growth, the current recovery cycle would “converge downwards” to slower growth rates, according to prepared remarks.
Yet he also warned against the threat of protectionism, which has risen as the developed world grows increasingly discontented with free trade.
“People are concerned about whether openness is fair, whether it is safe and whether it is equitable,” Draghi said.
Britain’s shock vote to exit the EU and US President Donald Trump’s nationalist presidential campaign opposing open borders have sent waves of unease through quarters that normally promote trade liberalization, such as the IMF and World Bank.
“A turn towards protectionism would pose a serious risk for continued productivity growth and potential growth in the global economy,” Draghi said.
He called for stronger public policies to support those left behind by globalization, including education and vocational training.
Echoing remarks made earlier on Friday by Yellen, Draghi also offered a forceful defense for continuing the robust financial regulations adopted after the 2008 meltdown, adding that there was “never a good time for lax regulation.”
He also said harmonizing tax policies between jurisdictions could help end the shifting of tax burdens from capital to workers, when countries reduce labor protections to entice investment and boost competitiveness.
“Taking a stand against race-to-the-bottom dynamics that threaten labor protections calls for a common regulatory approach,” Draghi said, noting that European social safeguards had helped prevent this.
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