Thursday

23rd Mar 2017

Draghi urges eurozone not to give up on austerity

  • 'We are just in the middle of the river we are crossing,' says Draghi. (Photo: World Economic Forum)

Budget cuts may be deepening the recession, but governments should not give up now, European Central Bank (ECB) chief Mario Draghi said on Wednesday (25 April) at a hearing in the European Parliament.

"We are just in the middle of the river we are crossing, the only way out is to persevere," the Italian economist in charge of the eurozone's central bank said.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

He admitted that "fiscal adjustment" - a euphemism for budget cuts - is contributing to recession, which in some countries may last longer than a year or even two.

"In certain cases the contractionary effects could be medium or even long term, for instance where youth unemployment has been there for a long time," Draghi noted, in reference to Spain, where over half of people under 25 are out of a job.

He said the only way out is to stick to labour market reforms that "free some energies in the economy," given that countries like Spain were prosperous and competitive in the past.

But he also referred to measures to stimulate growth, although not via budgetary expenditure: "What is most present in my mind is to have a 'growth compact'," he said.

In this context, the only thing the ECB can do is to keep interest rates low and make sure banks are lending to each other. "We cannot supplement the absence of governments taking structural reforms," he underlined.

The ECB has already engaged in several "non-standard" programs such as bond-buying and more recently, a €1 trillion cash injection in the eurozone banking system in the form of cheap three-year loans.

Any other interventions are being fiercely fought by the German central bank, which has openly disagreed with the cheap loan program.

For his part, Draghi also pointed out the "limitations" of the bank's legal mandate.

"It is a delicate balance where we want to preserve the credibility of the ECB - one of the few things left now. We wouldn't do any good were we to step out of the limits of our treaty," he said, when pressed by MEPs to step up the bond-purchasing program.

As for putting more pressure on banks who have taken up the ECB loans without giving cheaper loans to households and small enterprises in return, Draghi said the eurozone was based on "free market" rules and banks could not be told what to do with the money.

"We cannot direct credit like in a planned economy. National central banks are in a better position there, they are closer to the banks," he said.

Asked by MEPs about the potential impact of a left-wing president in France unpicking the EU25 fiscal discipline treaty or of the Duthch political crisis, Draghi said these are "outcomes very difficult to anticipate."

The bottom line - in his view - is that the euro area has to convince investors that it pursues "credible" policies to preserve "price stability, fiscal stability and growth."

Eurozone chief in 'drinks and women' row

[Updated] The Netherlands' Jeroen Dijsselbloem faces calls for resignation after saying that crisis-hit countries in southern Europe spent "money on drinks and women" before being helped by others.

Stolen Russian billions ended up in EU states

Illicit money flowing out of Russia ended up in almost every single EU state, an investigation has found, posing questions on the integrity of Europe’s banking systems.

News in Brief

  1. Man arrested in Antwerp after trying to mow people down
  2. Marine Le Pen goes to Russia
  3. Dutch post-election talks prioritise green-right coalition
  4. EU summons Turkish envoy over threats to Europeans
  5. British police make first arrests in London terror probe
  6. EU commission has received Facebook reply on WhatsApp
  7. Rome expects thousands of protesters at summit
  8. Dijsselbloem says his comments had 'Dutch directness'

Stakeholders' Highlights

  1. EJCExpresses Concern That Extremists Still Have the Ability and Motivation to Murder in Europe
  2. European Gaming & Betting AssociationAudiovisual Media Services Directive to Exclude Minors from Gambling Ads
  3. ILGA-EuropeTime for a Reality Check on International Day for the Elimination of Racial Discrimination
  4. UNICEFHuman Cost to Refugee and Migrant Children Mounts Up One Year After EU-Turkey Deal
  5. Malta EU 2017Council Adopts New Rules to Improve Safety of Medical Devices
  6. Nordic Council of MinistersNordic Energy Research: How to Reach 100 Percent Renewable Energy
  7. Party of European SocialistsWe Must Renew Europe for All Europeans
  8. MEP Tomáš ZdechovskýThe European Commission Has Failed in Its Fight Against Food Waste
  9. ILGA-EuropeEP Recognises Discrimination Faced by Trans & Intersex People
  10. Nordic Council of Ministers25 Nordic Bioeconomy Cases for Sustainable Change
  11. Malta EU 2017Consumer Protection Laws to Be Strengthened by EU-Wide Cooperation
  12. European Free AllianceSupporting Artur Mas: Democracy and Freedom Cannot Be Convicted

Latest News

  1. May: London attacker was known to the police
  2. Ending the migrant deal with Turkey may save the EU
  3. Poland unlikely to face EU discipline on rule of law
  4. Rutte courted Wilders' voters, now he must deliver
  5. Barnier to UK: trade talks will come after settling accounts
  6. EU declaration to voice unity in troubled times
  7. Terror attack shuts down UK parliament
  8. Catalonia and Scotland at core of Europe's geopolitical conundrum