Draghi Urges Spain to Persevere With Sacrifices
January 15th, 2013
The European Central Bank President, Mario Draghi, has encouraged Spain and other southern European countries to persevere with their sacrifices. In a press conference when the central bank announced their decision to maintain the official price of money unchanged at 0.75% in the eurozone, Draghi responded to criticisms that have been cast his way by, among others, the President of the Eurogroup, Jean Claude Juncker, on the harmful effects of an overdose of austerity.
Draghi said: “There are so many advances, accompanied by as many hard sacrifices that have already been made, that to return to the previous untenable situation would not be good.” “Tackling fiscal consolidation is inevitable, and we are aware of its short-term contractive effects, but now that so much has been done I do not think it would be right to turn back,” he added.
The ECB President explained the reasons why the European Central Bank Council has maintained the interest rates in the eurozone, saying that on this occasion the decision was taken unanimously, whereas in the previous session, just a month ago, the same agreement was made by consensus, because there were voices in favour of lowering the official price of money in order to stimulate growth.
“Conditions in financial markets have improved significantly, Draghi said, and capital inflows into the eurozone are increasing; economic forecasts have been confirmed, although the pulse of the real economy remains weak.”
Diario Sur reported that when asked in the press conference if he thought the worst was now over, Draghi based his optimism on real experience: “If there was a contagion effect in the debt crisis, he said – referring to the tensions that Italy and Spain suffered when the risk premium in both countries shot up almost simultaneously, and eventually spread to France – then I believe that there will also be a contagion effect in the improvement.”
Draghi cautiously went on to say: “I will be frank: it is too early to speak of success, or even that there has been a turning point in the crisis. What is still missing is the return to economic growth and the recovery prospects remain unclear.”
The ECB President said that the risks have not disappeared, because government policies are crucial to deciding the reforms that should boost the competitiveness of Europe. Draghi reiterated his conviction that the European Central Bank’s role is not the same as that of the U.S. Federal Reserve, because their mandates are very different.
“Our role is not to design a plan for employment,” Draghi said, after recognising that youth unemployment is one of the worst problems in certain European countries. “We analyse the reasons why, in times of crisis, young people are quick to lose their jobs, but also why at all times, unemployment affects predominantly the younger people.” The low mobility of workers, and the existence of a dual market, he said, are some of the causes. “Against them, the monetary policy cannot do much,” he conceded.