World Economy

Draghi Pushes for Urgent Structural Reforms

Draghi Pushes for Urgent Structural ReformsDraghi Pushes for Urgent Structural Reforms

Europe was at risk of suffering lasting economic damage from weak productivity and low growth, the European Central Bank’s president warned Thursday, underscoring his argument that monetary policy alone cannot end the bloc’s economic malady.

The ECB has been easing policy aggressively to boost growth and inflation in recent years with little to show for its efforts, fuelling argument that monetary policy was at its limits and governments needed to help out, Reuters reported.

“We do not let inflation undershoot our objective for longer than is avoidable given the nature of the shocks we face,” Mario Draghi told the Brussels Economic Forum. “For others, it means devoting every effort to ensuring that output is returned to potential before subpar growth causes lasting damage.”

“There are many understandable political reasons to delay structural reform but there are few good economic ones. The cost of delay is simply too high,” he added.

The eurozone grew by just 1.6% last year with much of the expansion coming from the ECB’s stimulus and growth is expected to flatline over the next several years with inflation also holding below the ECB’s target of close to 2%.

Draghi said growing below potential for too long actually reduced the economy’s potency because instead of output rising towards capacity, potential would fall towards the actual output, permanently embedding low growth.

“Given the harm that has already occurred to potential growth during the crisis, it also means (a need for) acting decisively to raise potential,” Draghi said.

  Lacking Innovation

Singling out areas for improvement, Draghi said the eurozone was lagging behind in innovative capacity, particularly in the services sector, and needed to utilize the latent potential in the eurozone labor force, which can be unleashed with appropriate labor market and activation policies.

He said that while structural reforms—such as cutting red tape and making labor markets more flexible—can be politically difficult, they are essential to boost growth and lower unemployment, ABC News reported.

Draghi called for a particular focus on the long-term jobless. Unemployment in the eurozone was at 10.2% at last count. The percentage of people who have been looking for a job for more than 12 months was at 5.5% in 2015, well above the 2.9% in 2008, according to statistics agency Eurostat. Draghi pointed to reforms in Portugal that reduced unemployment by about 3 percentage points from 2011 to 2014.

He underlined that it is important not just to get people into jobs but to increase the size of the workforce, amid forecasts that Europe’s working age population will start to decline in the next decade.