Brussels, 25/04/2012 (Agence Europe) - The president of the ECB, Mario Draghi, is in favour of creating a “growth pact” on the basis of the current budget pact, in order to stimulate structural reforms whilst continuing budgetary consolidation. “We have a budgetary pact …. We should take a step backwards and make it into a pact for growth”, he said on Wednesday 25 April at a monetary dialogue meeting with the MEPs of the committee on economic and monetary affairs. This statement supports the arguments of those who are opposed to economic policies based solely on austerity in public expenditure, such as the French Socialist candidate François Hollande, who is going head-to-head with outgoing President Nicolas Sarkozy in the presidential elections in France.
Draghi is coming to the party “a bit late”, was the reaction of the president of the European Parliament, Martin Schulz, who pointed out that the EP has for years been calling for a proper European strategy for growth. The impression leaving the European Councils is that the cleansing of public finances is “obligatory”, whilst investments for growth are less so, he observed, without calling “budgetary discipline” into question. He argues that the “European budget” should be used to co-fund investments in future sectors such as “renewable energies, regional policy, the trans-European networks and information technologies”. This sentiment was very much echoed by the European Commission. “Growth is the answer”, stressed its president, José Manuel Durão Barroso, who firmly believes that measures to promote growth should “come on top of” budgetary consolidation.
Sylvie Goulard (ALDE, France) said that the problems faced by many member states, such as Spain and the Netherlands, in achieving their budgetary targets have created a debate. Draghi did not deny that austerity has a recessive effect in the short term. But, he argued, this is unavoidable to convince the markets to start buying the sovereign debt of the countries of the eurozone again.
LTRO. Draghi took stock of the two LTRO (long term refinancing operations) for a massive (€1 trillion) injection of cash into the banking sector, over three years and for minimal interest rates. The stated aim is to encourage the banks using it to bolster their bottom line, to invest in sovereign debt and to lend more to the real economy. This last point is “crucial” and constituted the “ECB's key motivation”, said the former governor of the Banca d'Italia. Observing that a “very high” number of small local banks had participated in the operations, he said that he was “confident” that the ECB cash had come very close to the real economy, without causing any increase in inflation.
Additionally, the ECB on Wednesday published its new quarterly study on the granting of credit within the eurozone, which shows that credit conditions continue to become tighter, but at a slower pace than in previous quarters. This slight relaxation observed in the first quarter of 2012 can be explained mainly by a decrease in pressure on the banks of the region. Amongst other things, the study shows that the drop in demand for credit, which was high in the first quarter, comes mainly from a fall in applications for loans by non-financial companies (-30%), household mortgage loans (-43%) and consumer credit (-26%). The banks expect the phenomenon of tightening credit to slow down further in the second quarter of 2012.
Sovereign debt. How can we avoid a national fragmentation of the sovereign debt markets, asked Goulard. Without denying this phenomenon, Draghi said that the LTRO had at least allowed the banks to start acquiring sovereign debt again, as the decision to invest lies solely with them. He pointed out that the sovereign debt instrument purchase programme of the Frankfurt-based institute “exists, without being eternal or infinite”, going on to welcome efforts made in Spain. He stressed the importance of the ECB of acting within the limit of its mandate as defined by the treaty, which bans the direct financing of the member states, in order to preserve its “credibility”, “one of the last things it has left…”.
Macroeconomic imbalances. Draghi criticised the accumulation, in recent years, of “very large macroeconomic imbalances” within the eurozone, born of “insufficient budgetary discipline, financial excesses, the failure to implement the structural reforms, particularly, but not exclusively, on the employment and product markets, and considerable loss of competitiveness”. This situation calls for an “urgent and resolute” adjustment, but it is not up to the ECB to take responsibility for this, as it is not within its remit to deal with disparities between States in the eurozone, he stressed. He called on the member states to take action to remedy the “weaknesses” observed in the “budgetary, financial and structural” domains, for example by stimulating the creation of businesses. “On this point, the governments must be more ambitious”, he stressed. At European level, the ECB president stressed the need for a strong institutional framework for the monetary and economic policies. “Ensuring the competitiveness of all euro area countries should be seen as a common responsibility”, particularly due to the impact of a national policy on the other countries of the zone. (MB/transl.fl)