NCING governments’ books and reforming the Eurozone’s weakest economies are more vital than ever, European Central Bank boss Mario Draghi said yesterday.
And by insisting the economic medicine is working, analysts believe Draghi has ruled out any further monetary easing.
Hitting back at critics of austerity the ECB president said that citizens in countries like Spain have already made great sacrifices in the interests of longer-term growth, but any slowdown in the reforms would reverse those gains and render the past year’s efforts wasted.
“So much progress has already taken place, accompanied by such a big sacrifice that to revert to a situation which has already been found to be untenable would not be right,” he said after announcing the ECB is holding interest rates this month.
“We should not forget fiscal consolidation is unavoidable. It has short term contractionary effects, but so much has been done that it is not right to go back.”
But the ECB president added much more still needs to be done if the peripheral economies are to regain their lost competitiveness.
In particular product markets and labour markets need to be liberalised, to increased competition and end the “two speed” jobs markets in which young workers remain unprotected and unemployed while older workers are effectively unsackable.
Draghi argued that no change to interest rates was needed because of improving stock markets, falling financial volatility and falling bond spreads.
“By turning more upbeat on the assessment of financing conditions, the ECB statement was more hawkish than we expected,” said Citi economist Jurgen Michels.
“Unless there is a significant fall in the sentiment data, we no longer expect a cut in the refi rate in the first quarter.”