Draghi Says Governments Must Reform as ECB Creates Opportunity

  • ECB president speaks in Madrid on Europe’s weak productivity
  • Says low interest rates support rather than hinder reforms

Mario Draghi renewed his call for euro-area governments not to miss the “window of opportunity” provided by low interest rates to make economic adjustments.

“Monetary policy is providing support and space for governments to carry out necessary structural reforms,” the European Central Bank president said in a speech on Wednesday in Madrid. “It is up to euro-area governments to act, individually at national level as well as jointly at European level.”

While the euro area’s recovery has shown resilience in the face of global turbulence, productivity growth has been slow and unemployment in the region remains high. The ECB’s expansionary monetary policy has been one of the key drivers of expansion but it has also faced accusations, chiefly in Germany, of reducing pressure on governments to modernize their economies.

ECB’s Draghi Speech: Need for Reforms in Euro Area


Citing preliminary internal research by the ECB, Draghi hit back at those charges.

“There are certainly some commentators who at present believe that the ECB’s unconventional measures are stifling incentives for reform,” he said. “Lower interest rates, if at all, tend to support rather than hinder the implementation of reforms. We also see this confirmed by anecdotal evidence in some larger euro-area countries, which recently implemented some important labor-market reforms.”

‘Socially Positive’

The ECB president’s speech was his last scheduled appearance before the Governing Council sets monetary policy on Dec. 8. Policy makers are set to decide whether and how to extend their 1.7 trillion-euro ($1.8 trillion) bond-buying program.

He also stressed that reforms that cut unemployment and increase labor-market participation eventually reduce inequality. Those remarks come at a time when populists are making inroads on the back of disillusionment over European integration and its economic benefits.

“Reducing unemployment is socially positive from a distributional point of view,” Draghi said. “Reducing skill mismatches lowers structural unemployment and enables productive firms to grow. It also importantly addresses one of the main factors explaining the increase in income inequality.”

In an interview with Spain’s El Pais newspaper published earlier on Wednesday, Draghi said the rise of populism was making it more difficult to advance integration, and that political uncertainty is “dominant” in the region.

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