EUROPE’S sick economies need massive structural reforms if they ever hope to become competitive once more, European Central Bank (ECB) boss Mario Draghi urged yesterday.
“Courageous structural reforms and improvements in the competitiveness of the corporate sector are key to improving the business environment,” Draghi told the European Parliament’s economic and monetary affairs committee. “This would foster the urgently needed investment and create greater demand for credit.”
The ECB has offered banks a new round of cheap loans, but the takeup was relatively poor. Draghi told MEPs that the unpopular political reforms will instead have a bigger impact on growth in the longer-term. This is vital, he claimed, because without business confidence there would be less demand for loans to finance economic growth.
The stock of outstanding loans to non-financial corporations was 2.8 per cent lower in August than a year earlier, and 11.7 per cent below its peak in January 2009, according to ratings agency Moody’s. This probably reflects a combination of too few profitable lending opportunities for banks and their continued desire to deleverage and de-risk, Moody’s says.
Draghi also pledged further commitment to the upcoming asset purchases due to start next month.
“We stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation.” Some economists say that if the Eurozone recovery slows down, he may have to live up to his rhetoric.