2nd Oct 2023

Draghi warns eurozone leaders on recession 'relapse'

  • Draghi wants more reforms (Photo: Council of European Union)

European Central Bank chief Mario Draghi on Friday (24 October) gave a stark warning to eurozone leaders about the risk of a "relapse into recession" unless they agree on a "concrete timetable" of reforms and spur investments.

"The eurozone is at a critical stage, the recovery has lost its momentum, confidence is declining, unemployment is high. Commitments were made but often words were not followed by deeds," Draghi told the 18 leaders of eurozone countries who gathered for a special meeting at the end of a regular EU summit in Brussels.

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He showed them graphs and comparisons with the US highlighting the poor state of the eurozone economy.

"We avoided the collapse of the euro, but now our efforts should focus on avoiding a relapse into recession. I hope economy will pick up, but hope is not a strategy, today's problems will not go away miraculously," Draghi said.

To get the economy growing again, Draghi said leaders should not count only on actions by the ECB, but also do their share: boost investments and implement reforms.

He welcomed plans made by the new EU commission chief, Jean-Claude Juncker, to raise private and public money for €300 billion worth of investments for 2015-2017.

Draghi alluded to Germany by saying that countries "with fiscal space" should boost internal demand in order to help out the rest of the eurozone.

But he also appeased German critics - particularly in the centre-right government of Angela Merkel and the hawkish German Central Bank - by emphasising the need to stick to the euro-zone deficit and debt rules and to make "further steps towards sharing sovereignty in economic governance".

Germany has long pressed for so-called binding reform contracts between governments and the EU commission, given that only about ten percent of the economic policy recommendations made by the EU executive have so far been put into practice by the member states.

Speaking at a press conference after the eurozone meeting, German chancellor Angela Merkel said leaders agreed to "task the ECB, the commission and council presidents to formulate proposals on these next steps on further economic coordination".

She said she was grateful for Draghi having "held a mirror up to us" and to have pressed them to do more reforms.

On the growing dissent within the Bundesbank and some of her party ranks about the ECB's money-printing activities, she said she "fully respects" the independence of the ECB.

Asked if Draghi had given any particular advice for the German economy, Merkel said no, but that she thinks cutting red tape is important, as well as boosting the "digital economy".

"It would be great if all 28 EU countries sat down and worked out the same conditions for start-ups and venture capital to attract investors. Then you could say, yes, things are happening in Europe in the right direction," she said.

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