Draghi asks Euro governments to do more, as ECB reiterates stand

Jose Castro – Fourth Estate Cooperative Contributor

Jackson Hole, Wyoming, United States (4E) – The European Central Bank, according to its president Mario Draghi, is reassuring the European Union that it is ready to put in more money to stimulate the economy. He also called on the governments of the Union to do more in making the Euro economy better for everyone.

In a speech during the Kansas City economics conference in Jackson Hole WY, Draghi said, “We stand ready to adjust our policy stance further. It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy and I believe there is scope for this.”

He added, “Everyone in society is affected by high unemployment. For central banks, it is at the heart of the macro dynamics that determine inflation, and even when there are no risks to price stability it increases pressure on us to act.”

He then called out the governments in Europe, though he did not mention names, for their needed action on fiscal policy. The German government is one of the countries being alluded to for its tight fiscal policy at the time when other countries have been forced into austerity measures.

Draghi has been one of the more vociferous critics of government leaders who have ‘dragged their feet’ on the implementation of structural reform. He has long been an advocate of fiscal policy playing a ‘greater role’ on monetary policy matters throughout the Eurozone.

He recommended, “The way back to higher employment is a policy mix that combines monetary, fiscal and structural measures, which requires a coherent strategy at the union and national levels. This will allow each member of our union to achieve a sustainably high level of employment.”

The Euro was a bit below against the US dollar, pegging EUR1 to USD1.3247. This week, the Euro dropped slightly, at 1.5%.

One of the highlights of his speech is his announcement that European Commission President Jean-Claude Juncker is proposing a EUR300 billion private-public investment programme to help provide incentives for the private sector to invest in the economy of the European Union.

Draghi then outlined the four steps that growth friendly fiscal policies can be drafted and implemented. He said, “First, the existing flexibility within the rules could be used to better address the weak recovery and to make room for the cost of needed structural reforms.”

“Second,” he added, “there is leeway to achieve a more growth-friendly composition of fiscal policies, for instance by lowering the tax burden in a budget neutral way. Third, stronger coordination among the different national fiscal stances should in principle facilitate a more growth-friendly aggregate fiscal stance for the euro area.”

Finally, he said, “Fourth, complementary action at the EU level would also seem to be necessary to ensure both an appropriate aggregate position and a large public investment programme.”

The ECB Chief was sure that these package of actions, in cooperation with other European governments, would help get the Union and the Eurozone back on its economic feet.

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