–Adds Comments On EU Financial Supports, Fiscal Surveillance
TURIN, Italy (MNI) – The monetary policy of the European Central
Bank “remains very accommodative even after the increase in the policy
rates decided last week,” ECB Governing Council member Mario Draghi said
Wednesday.
The Bank of Italy governor, sounding rather hawkish, noted that in
the Eurozone, with consumer inflation running above the ECB’s threshold
of 2%, “we must prevent the deterioration of expectations in the
domestic price dynamics.”
He added: “We are evaluating the timing and mode of exiting from
the exceptionally expansive stance that has characterized monetary
policy in the [euro] area since the crisis.”
The current problem of strong inflation pressure is not restricted
to the Eurozone, Draghi noted. “Monetary policies must take account of
the emergence of inflation pressures, driven by the price increases of
food and energy.”
More generally, he said, “in the whole world there is now clearly
the need to end the extraordinary support to economies provided in the
last three years from public budgets and monetary policies.”
That support, he noted, has increased debt in the advanced
countries by nearly 25%. The medium-term policies of many governments,
to varying degrees, are already aimed at reducing the [fiscal]
imbalances, he said.
At the same time, Draghi acknowledged that in some economies there
is still a long road back from the damage caused by the financial
crisis: “The recovery has not cancelled the effects of the crisis
everywhere, nor has it eliminated the weaknesses that caused it.”
While in the U.S. output is back to its pre-crisis level, in the
Eurozone it is still 3% below it, and in Italy 5% below, Draghi said.
“Current account imbalances are not narrowing,” he observed. “The
strong divergences in world growth can undermine fundamentals,
increasing the volatility of exchange rates and interest rates.”
Draghi noted that EU rules require member states to achieve
balanced budgets, reducing their deficits by 0.5% of GDP each year. Now,
European officials are proposing new measures — a “Pact for the Euro”
— to strengthen the rules, including a requirement that countries whose
outstanding public debt exceeds the EU threshold of 60% cut it by 5%
each year.
One of the “crucial elements” of the new accord is that Eurozone
member governments incorporate in their national statutes the fiscal
rules enshrined in the Stability and Growth Pact, he said. “It is
indispensable for solidarity among the countries of the [euro] area that
the parameters of fiscal responsibility for each one be established with
rigorous criteria.”
Draghi observed that the tensions in EMU sovereign debt markets
last year “showed us how high the risk of contagion is among states in
difficulty and between them and the banking systems.”
He noted that in response to the debt crisis, Eurozone leaders had
created a bailout fund, the European Financial Stability Facility, to be
replaced in 2013 by the European Stability Mechanism.
“This will provide, with a modification of the Lisbon Treaty,
intervention to support states that are in trouble, dissipating the
current doubts that exist with regard to the compatibility of aid with
the ban on supporting national budgets,” he explained.
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