World Economy

Eurozone Must Launch Reforms

Eurozone Must Launch ReformsEurozone Must Launch Reforms

European Central Bank President Mario Draghi said it was time for eurozone governments to launch reforms, warning that growing structural differences were dangerous for the monetary union.

"There is not going to be a better moment than now to make reforms," Draghi told central bankers and economists at a forum held in the historic Portuguese city of Sintra, AFP reported.

At the opening of the ECB-organized forum on Friday, Draghi had noted that the economic outlook for the eurozone was "brighter today than it has been for seven long years."

The ECB had played its part in laying the foundations for recovery by cutting interest rates to record lows and pumping unprecedented amounts of liquidity into the economy via a series of unconventional policy measures, he said.

"In a monetary union, you cannot allow major and growing structural differences, that has a tendency to become explosive" and threatens the very existence of the union, Draghi said at Saturday's event.

"The main cause of inequality is unemployment," he said, which along with weak economic growth showed the need for reforms by eurozone governments.

Delay Could Be Dangerous

In a separate statement on Saturday, Draghi called for speeding up economic and monetary union, again warning that further "delay could be dangerous."

"Economic and monetary union has brought enduring benefits to all countries that joined it. But it has also had an influence on their economic policy choices, limiting the sovereignty of individual states – a development that many people only discovered after the explosion of the (financial) crisis," Draghi said in a statement read in his absence to a conference in Rome.

The result has been renewed resistance to structural reform and financial discipline, he said, and a desire of national governments to return to pre-crisis habit as Europe's long period of sluggish growth and recession begins to fade.

Qualitative Leap Needed

Draghi acknowledged that several post-crisis integration initiatives – such as the EU banking union – have been positive, but that many others have stalled.

"The banking union represents an important step, but it must be taken to its term. Now we must achieve a complete union of capital markets," he said. "Financial integration must take a qualitative leap."

Draghi added that while he understood the effort to continue integrating eurozone economies would always be a work in progress, he said members had more to gain through greater union than retaining their differences.

Sluggish Economy

Dragi called for pro-business reforms by governments. Such reforms "are about unleashing an untapped potential for substantially higher output, employment and welfare. In the current environment, this would play a crucial role in ensuring that the ongoing cyclical recovery becomes a stronger, structural recovery," AP said.

Draghi avoided most details, but such measures could include things like reducing the paperwork needed to start a business. It could also mean less restrictive rules governing hiring and firing, and reducing the gap in legal protections between established workers who are hard to lay off and younger workers who remain stuck with short-term contracts at low wages.

Draghi said governments should take advantage of the breathing space afforded by ECB stimulus measures, which include rock-bottom interest rates and a 1.1 trillion euro ($1.2 trillion) monetary stimulus in the form of bond purchases with newly printed euros.

Europe's economy ticked up in the first quarter, showing growth of 0.4 percent. Yet the 19 European Union nations that use the shared euro currency are still struggling to get past a crisis over too much government debt in some countries. Greece, Ireland, Portugal and Cyprus needed bailout loans from other countries, and spending restraint has held back growth.

Unemployment remains stubbornly high at 11.3 percent, and at 50 percent for young people in Greece and Spain.