Saturday

27th Aug 2016

Draghi urges new stimulus to stave off stagnation

  • Draghi: The risks of 'doing too little' to stimulate the eurozone economy outweigh those of 'doing too much' (Photo: Valentina Pop)

The European Central Bank (ECB) is preparing to step up its attempts to breathe life into the eurozone’s stagnant economy.

During a speech in the US on Friday (22 August), ECB chief Mario Draghi called on eurozone treasuries to take fresh steps to stimulate demand amid signs that the bloc’s tepid recovery is stalling.

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.

"It may be useful to have a discussion on the overall fiscal stance of the euro area," Draghi told delegates at a meeting of financiers in Jackson Hole, Wyoming, adding that governments should shift towards "a more growth-friendly overall fiscal stance."

"The risks of 'doing too little’...outweigh those of 'doing too much’”, he added.

The Frankfurt-based bank is preparing to belatedly follow the lead of the US Federal Reserve and the Bank of England by launching its own programme of quantitative easing (QE) - creating money to buy financial assets.

In June the ECB cut its main interest rate to a record low of 0.15 percent and announced plans to introduce a new four year programme of cheap loans to banks, starting in September, if they promise to increase lending to businesses.

Draghi’s remarks come as policy makers are once again under intense pressure to stave off a vicious spiral of economic stagnation, high unemployment and very low inflation across the eurozone.

They also mark a departure from the austerity-heavy rhetoric in many EU governments that has prioritised deficit reduction and structural reforms ahead of stimulus measures.

Figures released by Eurostat earlier this month revealed that the eurozone economy flat-lined between April and June. The German economy contracted on fears about the EU’s sanctions battle with Russia, while Italy fell back into recession.

This Friday Eurostat will release the currency bloc’s inflation rate in August. Analysts fear that annual inflation will have slowed to 0.3 percent this month from 0.4 percent in July, well below the ECB’s 2 percent target.

Draghi also hinted that the bank was prepared to use “all available tools” at its disposal to prevent the eurozone falling into negative inflation. "We stand ready to adjust our policy stance further," he added.

Meanwhile, the euro opened trading on Monday (25 August) at its weakest level against the US dollar for nearly a year.

Draghi’s remarks could offer further encouragement to Italian prime minister Matteo Renzi, who has led a campaign to loosen the application of the EU’s rules on budget deficit limits to enable more spending on public infrastructure projects.

On Saturday (August 23), the Italian daily Corriere della Sera quoted transport minister Maurizio Lupi calling for Brussels to exclude spending on infrastructure projects from the calculation of national budget deficits.

Gulen faithful at work in EU capital

Persecuted in Turkey as the alleged authors of the July putsch, the followers of Islamic teacher Fethullah Gulen stay active as ever in the EU capital.

Italy earthquake is test for Renzi

Italian prime minister is expected to present a quick reconstruction plan and request more budget flexibility from the EU after this week's tragic earthquake.

News in Brief

  1. Hungary plans to reinforce border fence against migrants
  2. France's highest court suspends burkini ban
  3. Greeks paid €1bn more in taxes in June
  4. Greek minister denounces EU letter on former statistics chief
  5. Turks seeking asylum in Greece may cause diplomatic row
  6. Merkel becomes digital resident of Estonia
  7. Report: VW will compensate US dealers with €1bln
  8. EU mulls making Google pay news media for content

Stakeholders' Highlights

  1. GoogleBrussels - home of beer, fries, chocolate and Google’s Public Policy Team - follow @GoogleBrussels
  2. HuaweiSeeds for the Future Programme to Bring Students from 50 countries to China for Much-Needed ICT Training
  3. EFASpain is not a democratic state. EFA expresses its solidarity to Arnaldo Otegi and EH Bildu
  4. UNICEFBoko Haram Violence in Lake Chad Region Leaves Children Displaced and Trapped
  5. HuaweiMaking Cities Smarter and Safer
  6. GoogleHow Google Makes Connections More Secure For Users
  7. EGBAThe EU Court of Justice Confirms the Application of Proportionality in Assessing Gambling Laws
  8. World VisionThe EU and Member States Must Not Use Overseas Aid for Promoting EU Interests
  9. Dialogue PlatformInterview: "There is a witch hunt against the Gulen Movement in Turkey"
  10. ACCAACCA Calls for ‘Future Looking’ Integrated Reporting Culture With IIRC and IAAER
  11. EURidNominate Your Favourite .eu or .ею Website for the .EU Web Awards 2016 Today!
  12. Dialogue PlatformAn Interview on Gulen Movement & Recent Coup Attempt in Turkey