ECB and governments must co-operate to ensure investment, says Draghi
Mario Draghi, the president of the European Central Bank (ECB), has said that investment in the Eurozone will only return to pre-crisis levels if governments and the ECB collaborate to stimulate growth and push reforms through.
“A decisive rise in investment is essential to bring inflation closer to where we would want to see it, to stimulate the economy, and to bring down unemployment,” Draghi said ahead of a meeting with the finance ministers from the Eurozone in Milan on Friday.
“No monetary stimulus, indeed no fiscal stimulus, can be successful unless accompanied by the right structural policies, policies that foster potential growth and instill confidence.”
Over the last three months, in an attempt to keep inflation under control and revive lending the ECB has pledged cheap bank loans, cut interest rates and committed to purchase private-sector debt.
“The level of business investment in the euro area has only slightly improved since 2008, whereas in the US it is above its pre-crisis level,” said Draghi.
“We will not see a sustainable recovery unless this changes.”
Having previously stated his intention to push the ECB’s balance sheet from the current €2trn towards €3trn, Draghi has said the central bank will announce in September that it intends to help boost lending by acquiring covered bonds and asset-backed securities.
The first part of a four-year bank-funding scheme tied to loans to the real economy, the TLTRO, takes place on 18 September and is seen as the first step in Draghi’s long-term strategy for the ECB.
“We expect the two purchase programmes to effectively complement the TLTROs in enhancing the functioning of the monetary policy transmission and in providing further monetary accommodation,” the ECB president said.
“The Governing Council stands ready to take further action if needed, in compliance with its mandate to maintain price stability.”
Bundesbank President Jens Weidmann voiced his concern over the quality of the ABS assets the ECB intends to buy, but Draghi was adamant that “senior tranches of ABS have proven to be high-quality assets”.
“In this respect, the ECB welcomes efforts to have a differentiated regulatory treatment of simple, transparent ABS built on real assets,” said Draghi.
“Moreover, the provision of public guarantees should be considered to support lending to SMEs, as other countries do, such as the US.”
The ECB president stressed that governments have to foster growth by reducing the tax burden and lower “unproductive current expenditures,” as well as increase investments in the public sector.
“Only if structural, fiscal and monetary policies go hand in hand will the euro area see investment return,” Draghi said.
“We will only manage to stimulate investment if structural, fiscal and monetary policies mutually reinforce each other.”