President of the European Central Bank, Mario Drahi, called for structural reform of the Eurozone and called on the 19 members to proceeded with them as soon as possible. The cost of delaying structural reforms is “too high, by hurting labor and productivity that reduces economic potential in the long run,” Draghi said speaking at the Brussels Economic Forum on Thursday.
Stressing that “Europe is at risk is at risk of suffering lasting economic damage from weak productivity and low growth, Mario Draghi outlined three policy priorities to achieve higher productivity levels:
1) Consolidating the EU’s single market
2) instituting reforms that allow firms to scale up quickly
3) improving human capital through education and training schemes.
“There are many understandable political reasons to delay structural reform, but there are few good economic ones, Draghi said in a speech at the Brussels Economic Forum. “The cost of delay is simply too high.”
Monetary policy does not exist in vacuum as other policies can strengthen or dilute the effects of the central bank policy, he added.
The ECB aims to keep inflation near 2 percent over the medium term, which Draghi said “is not a fixed period of time”.
“When faced with adverse shocks, the pace at which monetary policy can bring inflation back to the objective depends on two factors: the nature of the shock itself, and the conditions in which monetary policy operates,” the ECB Chief said.
“The job of monetary policy is not to fight short-term shocks to prices, but to prevent them from feeding into longer-term inflation dynamics – or put another way, it is to make sure that the effect of shocks on inflation is no more persistent than it needs to be.”
Inflation risks returning to the ECB target at a slower pace if other policies are not aligned with monetary policy, he warned.
“The cost of delay…is that labor and productivity suffer, and the output gap closes in the “wrong way” – instead of output rising towards potential, it is potential that falls towards current output,” he said.
Praising the “structural reforms” that in real life mean: income cuts, mass lay-offs, ridiculously low wages and high unemployemnt, Draghi said also:
“In the euro area, many structural reforms have been implemented in recent years, and especially in those countries worst-hit by the crisis. The benefits can now be seen. But there are many more benefits still to aim for, and so much more needs to be done”
Summarizing key words, Draghi called on EZ members to cut expenditures, to decrease high taxes and to increase employment.
“It is well-documented for instance that workers who remain unemployed for too long may suffer the effects throughout their life, in the form of reduced employability, reduced productivity and reduced income – so-called hysteresis.That is particularly true for younger workers who are unemployed during the all-important formative years of their careers and may suffer from labour market “scarring”. In the euro area structural unemployment is estimated to have risen during the crisis, while youth employment remains high.”
From what I read in Draghi’s speech, I understand that it is a nice wishful thinking and a 12. grade essay about “How we would like to see our future”. Whereas the author/student has never had contact to the hardships of the real world and the human factor as he spent his life years in the family protection or behind a glass-wall like a central-banker.
What is interesting is that on Wednesday, German Deutsche Bank circulated a note accusing the ECB that it is “on course to destroy the eurozone.”
The European Central Bank risks tearing the eurozone apart for the sake “of short-term financial stability,” and the ECB needs to reverse course before it is too late, says Deutsche Bank.
A new note from the bank’s group chief economist, David Folkerts-Landau, says that the ECB has gone badly off course and needs to correct itself before it makes some “catastrophic” mistakes.
The European Central Bank risks tearing the eurozone apart for the sake “of short-term financial stability,” and the ECB needs to reverse course before it is too late, says Deutsche Bank.
A new note from the bank’s group chief economist, David Folkerts-Landau, says that the ECB has gone badly off course and needs to correct itself before it makes some “catastrophic” mistakes.
That correction should come, Deutsche argues, in the form of abandoning the bank’s negative interest rate policy (NIRP) and stopping the mass bond-buying it has undertaken in recent years.
(more on BusinessInsider)
The Germans are furious at ECB mainly because of zero interest rates even though they are fierce supporters of austerity until everything and everybody is dead.
more sources on Draghi :RTTNews, SeekingAlpha
How is Mario Draghi these days ?
And the European Centeral Bank is all cashed up ?
Has anyoe seen the most powerful woman in the world Angela Merkel ?
After several stints in hospital it is feared that she is not well enough to hold her job as chancellor ?
they all migrated to Australia and you just don’t know it