News Column

Eurozone Recovery Still at Risk, ECB's Draghi Warns

Feb 18, 2013

The eurozone's recovery from a devastating economic crisis is still at risk, the head of the European Central Bank (ECB) warned Monday, as he called for troubled countries to focus on cutting their expenditures and implementing reforms.

Financial markets have eased their pressure on eurozone countries since the beginning of the year, leading many to hope that the 17-member currency area has turned the page on the crisis.

But the bloc faces risks from weaker domestic demand and exports, the slow pace of structural reforms and "geopolitical issues and imbalances," ECB President Mario Draghi said.

"These factors have the potential to dampen the ongoing improvement in confidence and thereby delay the recovery," he told European Union parliamentarians during a debate in Brussels.

"The overall situation still remains fragile. Until we see growth, it will remain that way," he added. "The jury is still out ... In the meantime, we have to persist in repairing our balance sheets."

He argued that fiscal consolidation remains "unavoidable" for countries with high debt, but that governments should look at how to "mitigate the effects" of their belt-tightening. One approach is to focus on cutting expenditures rather than raising taxes, he said.

"For the countries in the eurozone, taxes are very high already," Draghi noted.

He also called for eurozone governments to aspire to the "fast and effective establishment of structural reforms" - for instance in their labour markets - and to draw up very detailed medium-term fiscal plans to reassure financial markets.

Draghi reiterated his support for plans this year for a European Union proposal on a resolution mechanism to wind up failing banks, as part of the push to create a eurozone banking union.

But he raised some eyebrows with comments about the first pillar of that union, the under-construction eurozone bank supervisor.

Draghi appeared to suggest that non-euro countries who join the supervision mechanism could eventually benefit from direct bank recapitalizations through the eurozone's bailout fund.

When pressed on the issue, he said that "was my conviction, but I stand to be corrected."





Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH


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