ECB Interview

Mario Draghi: ECB Policy Weak without Government Reforms

Mario Draghi needs more government backing, he tells Handelsblatt.
  • Why it matters

    Why it matters

    Mario Draghi holds the key to keeping the 19-nation euro zone out of a deflationary spiral that could severely damage its economy in 2015.

  • Facts


    • Mario Draghi has said the European Central Bank intends to purchase as much as €1 trillion in assets on the open market in a bid to raise the price of goods in the euro zone.
    • Annual euro zone inflation stood at 0.3 percent in November, well below the ECB’s mandate of close to but below 2 percent.
    • Germany has strongly opposed Mr. Draghi’s plan to to buy up government bonds in a program known as quantitative easing, fearing it goes beyond the ECB’s mandate and takes the pressure off governments.
  • Audio


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European Central Bank President Mario Draghi has vehemently urged euro zone governments to implement structural reforms, warning that the central bank will otherwise struggle to rescue the 19-nation’s economy from a period of stagnation and low inflation.

In an exclusive interview with Handelsblatt, Mr. Draghi said the ECB is prepared to take additional steps on its own to bolster a “fragile and uneven” recovery and could launch its newest and most ambitious round of monetary easing in the early part of 2015.  But he stressed that governments must carry more of the load, too.

“Interest rates have been very, very low for a long time – and they will presumably stay like that for a while longer,” Mr. Draghi said.

“We have a mandate. It is to keep inflation close to, but below, 2 percent. That is our legal obligation. And we must deliver,” he said. “But it is quite clear that our monetary policy would be much more effective if the countries’ governments implement structural reforms.”

Mr. Draghi said “all” euro zone governments need to do more, including Germany. He noted that Europe has among the world’s highest tax rates, putting it at a “big competitive disadvantage.”

“The triad of weakness in the reform process, bureaucracy and the tax burden hinder Europe’s recovery. If we don’t solve this, our growth will remain weak,” he said. Concretely, he called for more spending on investment – notably research, education and the digital agenda. “Other expenditure, and also taxes, should be reduced.”

Mr. Draghi said the risks of the ECB failing to meet its own mandate of safeguarding price stability are “higher than they were six months ago.” As a result, the ECB has said it could soon launch a U.S.-style quantitative easing program that would see the central bank buy as much as €1 trillion in government bonds and other assets from the 19 nations that make up the euro zone. Such a plan could be put into action by early 2015.

“We are making technical preparations to alter the size, pace and composition of our measures in early 2015, should it become necessary to further address risks of a too prolonged period of low inflation,” Mr. Draghi said.

The euro zone’s annual inflation rate stood at just 0.3 percent in November. Mr. Draghi said this is something that needs to be confronted, even if the likelihood of outright deflation remains minimal.

“The risk [of deflation] cannot be ruled out completely, but it is limited. The important thing is what inflation rate people expect over the medium term. Since June, we have seen that these expectations have declined. If inflation remains low for a long time, people might expect prices to fall even further and postpone their spending. We are not there yet. But we need to tackle this risk,” Mr. Draghi said.

The ECB president said he remains confident the euro zone’s economy will strengthen in 2015. He predicted that no European country will be in recession at the end of this year.

“Europe is gradually getting stronger,” he said. “I am confident that next year will see all countries in the euro area grow.”


Read the full interview with Mario Draghi at 1200 Central European time (6am U.S. Eastern Standard Time) on Handelsblatt Global Edition. The interview was conducted by Handelsblatt’s publisher Gabor Steingart and chief editors Hans-Jürgen Jakobs and Sven Afhüppe. Christopher Cermak contributed to this story. To contact the author:

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