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Draghi Says Jury Still Out on Whether Euro Economy Will Improve

2013 WEF Davos
ECB President Mario Draghi said while conditions on financial markets have improved considerably, policy makers are still waiting for sign that the economy has turned for the better. Photographer: Chris Ratcliffe/Bloomberg

Jan. 25 (Bloomberg) -- European Central Bank President Mario Draghi said while conditions on financial markets have improved considerably, policy makers are still waiting for signs that the economy has turned for the better.

The ECB’s bond-purchase program “turned out to be very helpful in removing the tailrisks, the risks to the euro as such,” Draghi said during a discussion at the World Economic Forum in Davos today. “Are we satisfied with that? The jury is still out. We haven’t seen an equal momentum on the real side of the economy.”

Financial markets have rallied since the ECB said last year that it would buy unlimited amounts of governments bonds to counter speculation of a euro breakup if certain conditions are met. The program hasn’t been used yet, and the 17-nation euro area has slipped into recession as governments cut spending to rein in deficits.

“Fiscal consolidation is unavoidable,” Draghi said. “There can’t be any sustainable growth or, for this matter, any sustainable equity achieved through an endless creation of debt. But we have to admit that fiscal consolidation is contractionary in the short term.”

Draghi said conditions are “considerably more favorable” than last year.

“The perception we have at the ECB is that the level of economic activity is in the process of stabilizing at a very low level,” he said. “We foresee a gradual recovery in the second part of the year.”

To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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