JACKSON HOLE, Wyo. — Mario Draghi, president of the European Central Bank, said Friday that European governments needed to move from a focus on austerity to a “more growth-friendly composition of fiscal policies.”
Mr. Draghi’s comments were a change in tone for him, reflecting mounting concern that economic growth is sputtering in many European countries and that existing efforts have proved insufficient to spur faster growth.
Speaking before an annual gathering of central bankers and economists at a resort in the Rocky Mountains, Mr. Draghi said that the central bank was moving to increase its own stimulus campaign but that governments in the eurozone also needed to help bolster demand for goods and services.
“Since 2010, the euro area has suffered from fiscal policy being less available and effective,” he said. “It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this.”
Mr. Draghi’s comments underscored a growing divide between the United States, where the economy appears to be gaining strength, and Europe, where an enduring malaise has kept unemployment painfully high while the rate of inflation, generally considered most beneficial when it is running around 2 percent annually, has nearly come to a halt.
The aggregate economy of the 18 euro area countries did not grow in the second quarter, according to an initial estimate published this week. The data provided ammunition for critics who say European countries have undermined growth by curtailing government spending.
The central bank moved in June to expand its own campaign to stimulate the economy, and Mr. Draghi emphasized that the effort would continue.
“Our preparations for outright purchases in ABS markets is fast moving forward,” he said, referring to the bank’s plans to begin a broad bond-purchase program, emulating the Federal Reserve and the Bank of Japan.
He also noted that the euro’s recent decline was likely to continue as the American economy gains strength, a development he characterized as favorable because it would help to increase exports. Mr. Draghi suggested that European countries should consider public investments and tax cuts to complement the central bank’s stimulus campaign.
Countries like Germany, which are relatively healthy, have the most room to adopt such policies without breaking the rules of the euro area. Mr. Draghi appeared to refer to the need for such countries to reconsider their commitment to austerity in calling for the euro area to move to “a more growth-friendly” fiscal stance.
Some German officials, however, have already signaled a reluctance to move in this direction. They argue that the onus is on struggling European countries like Spain, Italy and Greece to make painful economic adjustments intended to increase long-term growth, like reducing legal protections for workers, cutting back on social welfare programs and reducing public spending.
Mr. Draghi was careful to say that those countries could not avoid such adjustments. The argument he made on Friday, however, was that such policies are by themselves insufficient.
“Without higher aggregate demand, we risk higher structural unemployment, and governments that introduce structural reforms could end up running just to stand still,” he said. “Without determined structural reforms, aggregate demand measures will quickly run out of steam and may ultimately become less effective.”
nytimes.com
Mr. Draghi’s comments were a change in tone for him, reflecting mounting concern that economic growth is sputtering in many European countries and that existing efforts have proved insufficient to spur faster growth.
Speaking before an annual gathering of central bankers and economists at a resort in the Rocky Mountains, Mr. Draghi said that the central bank was moving to increase its own stimulus campaign but that governments in the eurozone also needed to help bolster demand for goods and services.
“Since 2010, the euro area has suffered from fiscal policy being less available and effective,” he said. “It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this.”
Mr. Draghi’s comments underscored a growing divide between the United States, where the economy appears to be gaining strength, and Europe, where an enduring malaise has kept unemployment painfully high while the rate of inflation, generally considered most beneficial when it is running around 2 percent annually, has nearly come to a halt.
The aggregate economy of the 18 euro area countries did not grow in the second quarter, according to an initial estimate published this week. The data provided ammunition for critics who say European countries have undermined growth by curtailing government spending.
The central bank moved in June to expand its own campaign to stimulate the economy, and Mr. Draghi emphasized that the effort would continue.
“Our preparations for outright purchases in ABS markets is fast moving forward,” he said, referring to the bank’s plans to begin a broad bond-purchase program, emulating the Federal Reserve and the Bank of Japan.
He also noted that the euro’s recent decline was likely to continue as the American economy gains strength, a development he characterized as favorable because it would help to increase exports. Mr. Draghi suggested that European countries should consider public investments and tax cuts to complement the central bank’s stimulus campaign.
Countries like Germany, which are relatively healthy, have the most room to adopt such policies without breaking the rules of the euro area. Mr. Draghi appeared to refer to the need for such countries to reconsider their commitment to austerity in calling for the euro area to move to “a more growth-friendly” fiscal stance.
Some German officials, however, have already signaled a reluctance to move in this direction. They argue that the onus is on struggling European countries like Spain, Italy and Greece to make painful economic adjustments intended to increase long-term growth, like reducing legal protections for workers, cutting back on social welfare programs and reducing public spending.
Mr. Draghi was careful to say that those countries could not avoid such adjustments. The argument he made on Friday, however, was that such policies are by themselves insufficient.
“Without higher aggregate demand, we risk higher structural unemployment, and governments that introduce structural reforms could end up running just to stand still,” he said. “Without determined structural reforms, aggregate demand measures will quickly run out of steam and may ultimately become less effective.”
nytimes.com
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