Austerity and Reforms Necessary Despite Social Cost, Says ECB Chief
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European Central Bank President Mario Draghi on Wednesday acknowledged growing indignation over painful austerity and reform measures, but argued that they are crucial to a fairer society and can reduce injustices in the long-run.
Draghi’s remarks come two days after an inconclusive election in his native Italy, in which voters roundly rejected the austerity policies pursued by outgoing Prime Minister Mario Monti.
European Central Bank President Mario Draghi on Wednesday acknowledged growing indignation over painful austerity and reform measures, but argued that they are crucial to a fairer society and can reduce injustices in the long-run.
Draghi’s remarks come two days after an inconclusive election in his native Italy, in which voters roundly rejected the austerity policies pursued by outgoing Prime Minister Mario Monti.
The austerity programme carried out by Monti over the past 15 months managed to lower the debt burden of eurozone’s third largest economy and restore confidence in the single currency, but they are blamed for worsening unemployment and Italy’s worst recession in two decades.
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Without making direct reference to Italy, Draghi said “the benefits of the painful actions undertaken so far have not yet materialised” and acknowledged that “economic adjustment is coming at a heavy social cost.”
He added:
[quote] Economists often speak about “inevitable adjustment costs”, which to some sounds cold, heartless and lacking compassion. But we are fully aware of the human dimension that lies behind it. [/quote]
Calling unemployment “a tragedy,” he urged governments to press ahead with fundamental reforms that boost the potential of their economies to grow and said that the concept of fairness begins “within countries.”
He singled out the high rate of youth unemployment, which is over 50 percent in Greece and Spain. “Is that fair, that as a result, this generation has to bear the bulk of the burden in the downturn?” he asked.
Arguing that reforms will eventually make it easier to do business and reduce social inequality, Draghi said countries reform to help themselves, not to satisfy the ECB of the European Commission:
[quote] For this reason, it is wrong to claim that countries are undertaking reforms only to please the markets or to satisfy the demands of technocrats in Brussels, Frankfurt or Washington. They are doing it for their own benefit. And it is time that this message gets more emphasis. [/quote]
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On the policy front, Draghi cautioned that there are limits to what the ECB can do and achieve. “We cannot repair unsound budgets. We cannot clean up struggling banks. We cannot solve deep-rooted problems in the structure of Europe’s economies.”
The ECB’s main objective is to maintain price stability of the euro and the bank availed itself last year to unlimited but conditional financial assistance to any eurozone country that requested help.
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