Mario Draghi “recognises” Spain’s “significant effort” but asks for “perseverance”

The President of the European Central Bank, whose Governing Council met in Barcelona on May 3rd, praised the Spanish Government’s “significant effort” made in a “very short period of time” to approve structural reforms. However, Mario Draghi, asked Spain “to persevere” in the strategy based on austerity and accomplish further reforms. The ECB’s President emphasised Europe’s need to adopt measures strengthening economic growth but without abandoning the principles of austerity. Draghi recommended continuing to reduce public spending in order to control the deficit. As expected, the ECB is maintaining the interest rate at 1%.


May 4, 2012 12:32 AM

Barcelona (ACN).- The President of the European Central Bank, Mario Draghi, “recognised” Spain’s “significant effort” to adopt structural reforms, “made in a very short period of time”. Draghi asked Spain “to persevere” implementing the measures already in place and adopt further reforms, without abandoning the principles of austerity. Answering the voices asking for greater flexibility regarding the deficit targets and for favouring the implementation of policies focusing on strengthening economic growth, Draghi stated that “there is no contradiction” between economic growth policies and the fiscal and budget stability pact. Furthermore, he announced that the European Central Bank (ECB) is maintaining the interest rate at 1%. The President of the ECB held a press conference on Thursday in Barcelona, after the ECB Governing Council meeting, organised in the Catalan capital. The ECB meeting took place without any incidents in Barcelona, as the city was being guarded by a unique police deployment made up of 8,000 officers, from the Catalan Police, the Spanish Police and the ‘Guardia Civil’.

Considering the current recession, many voices throughout the European Union, and from the United States or Asia, have been asking European leaders to not focus so much on reducing the public deficit but on reactivating the economy through stimulation measures and productive investments. According to the ECB President, “there is no contradiction” between economic growth policies and the fiscal and budget stability pact. As the main manager of Europe’s monetary policy, he decided to keep the ECB’s interest rate at 1% and has asked European governments to make the necessary reforms to control their deficits and boost the economy, always following the principles of austerity. For Mario Draghi, the recipe for success is to reduce public spending, without cutting major investments and without increasing taxes. Then, according to him, economic growth will return, but always prior a budget restructuring in the countries with high levels of debt.

Draghi said he “understands” the “rage” expressed by “young people without a job”

Draghi explained that the Growth Pact should be based on structural reforms to improve the competitiveness of Europe’s production system; the main reform being that of the labour market, fostering flexibility, mobility and equality. The main objective of such reforms would be to prevent that, in the face of a deep economic crisis, younger workers being first to be expelled from the labour market. In fact, Draghi said he “understands” and feels “empathy” with the “rage” expressed by “young people without a job”.

Draghi criticisesd tax increase taxes and investment reduction

The ECB President asked to avoid the temptation of the “most comfortable” policies, which are those to increase taxes and reduce investment in order to meet with the deficit targets. Draghi is said to understand those measures adopted in an emergency situation, but he asked to focus the adjustment on reducing regular spending while trying to keep the productive investments.

A better offer of loans to families and enterprises

Draghi defended the ECB’s €1 billion injection of cash in Europe’s banking system, which was made between December and February. According to him, it prevented a “financial collapse” and the measure is still having positive effects. He said that ECB studies show that there is a better offer of loans to families and enterprises, and less volatility in financial markets. Asked if another massive injection of liquidity would take place, Draghi said that such a measure cannot be announced in advance, since it is a decision conditioned to the circumstances.

Draghi praised Spain’s efforts with its financial reform

The ECB President asked European countries to accomplish their reforms in a “fast” and “ambitious” way. Draghi praised Spain’s efforts with its financial reform but he recommended accomplishing it as soon as possible. Asked about the possibility to create a ‘bad bank’ to absorb real estate assets, Draghi expressed his “full trust” in the measures the Spanish Government is adopting regarding its financial system. He added that, when decided, the measures will be “analysed” by the ECN, although he has “no doubt” they will be adequate measures.

Finally, Draghi complained that the successes of the Eurozone controlling the public deficit are not sufficiently recognised. He said that by the end of 2012, 10 of the 17 Eurozone countries will have reached the budget stability requested by the EU, while at the end of 2013, the number of countries will have increased to 14 out of 17.