Mario Draghi said the European Central Bank is ready to add more stimulus and called on governments to do more to help the euro-area economy.
“We stand ready to adjust our policy stance further,” the ECB president said today in the text of a speech at the Federal Reserve Bank of Kansas City’s economics conference in Jackson Hole, Wyoming. “It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this.”
Draghi’s call for politicians to play their part in safeguarding the euro-area recovery comes as pressure mounts on the ECB for radical measures such as quantitative easing. While he has previously pledged to take further action “should it become necessary,” he omitted that qualifying phrase today.
One year after the end of the currency bloc’s longest-ever recession, the economy has stalled, unemployment remains near a record high and inflation is the weakest in almost five years. The ECB’s Governing Council next meets to set monetary policy on Sept. 4 in Frankfurt.
“We need action on both sides of the economy: aggregate demand policies have to be accompanied by national structural policies,” Draghi said. “We should not forget that the stakes for our monetary union are high.”
Countries including France and Italy have argued for more flexibility with their budgets, and French Finance Minister Michel Sapin said this month that his country will exceed a deficit target agreed upon less than four months ago with the European Commission. Germany has said nations should stick to the rules on fiscal goals.
Euro-area unemployment data next week is forecast to show the jobless rate held at 11.5 percent in July, almost twice as high as the U.S. rate of 6.2 percent. Fed Chair Janet Yellen said earlier today at Jackson Hole that too many Americans are still out of work while acknowledging that “considerable progress” has been made.
The Fed is tapering monetary stimulus and debating when to start raising interest rates. In contrast, Draghi announced unprecedented policy measures in June, including a negative deposit rate and targeted funding for banks tied to lending to companies and households.
Draghi said he is “confident” that the package of measures will boost demand, while warning that there is still a “real risk” that monetary policy loses some effectiveness.
He proposed four areas in which fiscal policy could be improved: better use of flexibility within existing European Union rules; lower taxes; stronger fiscal coordination between governments; and EU action to ensure a large public investment program. He also said such measures could only buy time.
“No amount of fiscal or monetary accommodation, however, can compensate for the necessary structural reforms in the euro area,” he said. These reforms “can no longer be delayed.”