The President of the European Central Bank, Mario Draghi, said on Monday, before the European Parliament, that economic weakness will prevail in the eurozone in early 2013, but that he foresees a gradual recovery throughout the year.
During his speech, Draghi warned that any relaxation of fiscal adjustments would jeopardise economic improvements and the progress made to date in the eurozone.
The ECB President appeared before the European Parliament’s Committee for Economic and Monetary Affairs, where he stated that the Institution will maintain its expansionary monetary policy and that inflationary pressures in general should remain contained in the relevant outlook for the monetary policy.
Draghi said: “Fiscal consolidation, especially for countries with high debt, is inevitable. And, at the same time, it is also true that this has contractionary effects in the short term.” “If fiscal consolidation weakens, we risk losing some of the benefits gained through the many sacrifices already made.”
In Draghi’s opinion, “the key is not to postpone fiscal consolidation or attenuate, but to mitigate the effects of fiscal consolidation.” He went on to say that this should be achieved by making the adjustments “based more on spending cuts than on tax increases,” as “taxes in the eurozone are already very high”.
“Additional efforts are still needed to ensure that Europe continues to emerge from the crisis, returns to creating confidence among investors and citizens, and restore stability and growth,” said Draghi. However, he added that “in 2013 we have entered into a more stable financial environment than in recent years.”
El Economista reported that during his visit to Spain last week, the ECB President said that the economic and credit improvement will come in the second half of the year, both in Spain and in the rest of the eurozone. Draghi said that the eurozone will see a “modest and slow recovery” in the second half of the year, but noted that they are already seeing “signs of stabilisation in the eurozone”.
However, before the European Parliament Draghi lamented that, despite the signs economic “improvement” is already occurring in Spain, citizens are not yet noticing its effects.
The ECB President also indicated in his speech on Monday that although the exchange rate of the euro is not an objective of the European Central Bank policy, it represents a “negative risk” to inflation which the Institution will have to assess.
“The exchange rate is not a policy objective but it is important for growth and price stability”, said Draghi before MEPs in a prepared statement, adding that “inflation is expected to fall below 2% in the short term” and that the ECB’s monetary policy remains flexible.