City blasts Euro boss over growth claims

Tim Wallace
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hi’s delusions
■ Eurozone is poised for solid recovery
■ Debt to GDP is down even in the countries with the worst ratios

EUROPEAN Central Bank boss Mario Draghi was under fire yesterday for claiming the Eurozone economies are back on track for growth – just a day after the European Commission slashed its own forecasts for the single currency area.

Draghi said the troubled currency area’s governments have made great strides in reforming their economies, meaning they are “poised for recovery” – but economists disagreed with his optimistic forecast.

New figures in Greece show more than a quarter of the labour force are unemployed, and an astonishing 58 per cent of those aged between 16 and 24 are jobless, showing the country’s crisis worsening.

“I wouldn’t have said it a year ago, but both the Eurozone as a whole and individual countries have a fundamental position which is way more balanced than the US, Japan and the UK,” Draghi said, pointing to falling private debt levels, a better trade position and falling labour costs – although he noted poor survey data.

“This poises the Eurozone for a recovery. It will probably be slow, but it will be solid,” he concluded.

City economists disagreed.

“If anything the Eurozone is poised to remain in the doldrums for even longer,” said Investec’s Philip Shaw.

“Despite noble attempts by Draghi to defend the Eurozone’s prospects, the outlook is really very different.”

Brussels this week slashed growth forecasts and now expects the economy to grow by just 0.1 per cent in 2013 while unemployment will rise to 11.8 per cent. But the ECB president even claimed government debt positions are getting better.

“Fiscal consolidation has been amazing – and when we look at other parts of the world, they have not been so amazing. Debt to GDP is on the way down, even in countries with the highest ratios,” he claimed.

But the EC’s studies show that debt will climb to 94.5 per cent of GDP next year, and continue to run a solid deficit into 2014.

And economists said even the EC’s gloomy forecasts may be overly optimistic. “The economy is getting worse, not better – a 0.4 per cent contraction in GDP next year is looking more likely,” said BNP Paribas’ Ken Wattret.

“It does sound odd for Draghi to talk about an improvement when uncertainty is so high and business confidence is falling. Draghi’s view of rebalancing and growth is very much a long-term one.”