ECB Draghi Needs European Nations to Be More Involved

The European central bank is ready to do more to boost the shaky recovery in the 18 countries that use the euro, its head Mario Draghi said on Friday, but he warned that governments must join in efforts to reduce stubbornly high unemployment.

In a speech at the US Federal Reserve conference in Jackson Hole, Wyoming, he said: “We stand ready to adjust our policy stance further.”

The bank has cut interest rates, offered cheap loans to banks and is weighing up making asset purchases to pump more money into the economy, but Draghi did not offer new guidance on when the bank might take action.

Draghi, who said the ECB could not get the economy going by itself, has been in conflict with the national governments in countries such as France and Italy. The French, in particular, have pushed for the ECB to do more, but Draghi has insisted that the eurozone governments must take politically difficult steps to make their economies more business-friendly. He said Ireland had lowered unemployment more quickly due to a flexible economy and Spain had benefited from loosening workforce rules.

Draghi said the risk of negative side effects from stimulus was low. Inflation is at 0.4%, well below the bank’s goal of just under 2%, but unemployment remains at 11.5%.

He said longstanding practices in some eurozone countries were keeping unemployment high. and governments needed to enact reforms such as allowing companies to bargain wages at the firm level instead of accepting industry-wide agreements. He said more freedom to adjust wages and workforce levels would make companies more willing to hire and reduce the time people who lose their jobs spend out of work.

“No amount of fiscal or monetary accommodation, however, can compensate for the necessary structural reforms in the euro area,” he said.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza