Two months ago, I argued Mario Draghi understands what Italy needs. Here it is.
The former European central bank chief, prime minister since February, has unveiled €221 billion in proposed investments, spread over six years. €191 billion would come from the EU’s coronavirus recovery fund.
Mario Draghi is off to a good start. The former central banker has won the support of Italy’s major political parties to form a government and he understands the reforms it needs to undertake.
His challenge will be convincing the parties to see those reforms through.
Receiving more than €200 billion from the EU’s €750 billion coronavirus recovery fund should help. A chunk of the money will go to vaccinating Italy’s population of 60 million, but there will be more than enough left over to invest in long-term growth.
Money isn’t everything, though. Bringing Italy’s economy back to life after it shrunk almost 9 percent in 2020 will require making the sort of choices its politicians have avoided for years. Read more “Draghi Understands What Italy Needs”
It’s not an endorsement of Italian democracy that the country needs another above-the-fray technocrat to pull it out of the mud.
If Mario Draghi, the former European Central Bank chief, wins the support of parliament, three of the last six Italian prime ministers will have been apolitical appointees.
I hope Ferdinando Giugliano is right and Draghi will succeed where his predecessors failed, but recent history — and Giugliano points this out too — does not inspire confidence. Neither Mario Monti nor Giuseppe Conte was able break the political logjam to enact much-needed reforms. Read more “Italy Shouldn’t Need Draghi”
European Central Bank president Mario Draghi announced on Thursday that he will not buy additional Italian and Spanish government bonds to help those countries reduce their borrowing costs in financial markets.
Draghi was under pressure from peripheral central bank members to start another bond buying operation but more hawkish members in Finland, Germany and the Netherlands had indicated ahead of his press conference on Thursday that they were opposed to such a move.
Although Draghi’s remarks left the door open to future bond purchases in coordination with the European bailout fund, he nevertheless drew a line in the sand when he insisted that “the ECB cannot replace governments.” Countries that suffer under high borrowing costs “need to go to the EFSF” first he said: the European Financial Stability Facility. Member states must unanimously agree for the EFSF to distribute financial aid. Read more “European Central Bank President Draws Line in Sand”
The oscillations of the European debt crises have become quite familiar to those observing it. A country or national bank suffers from a negative spiral of debt and fading confidence. This is followed by a new nudge in the direction of deeper integration, or a bailout package is announced. A northern country which is fiscally sound then makes a controversial statement of refusing to cooperate on the terms proposed. This process muddles on until a new country or institution is in a dire situation. Like last year, summer holiday season generates the greatest divide between the political process and the factors that affect the crisis.
Europe’s social model is obsolete and fading, according to central bank president Mario Draghi.
“You know there was a time when [economist] Rudi Dornbusch used to say that the Europeans are so rich they can afford to pay everybody for not working,” he said. “That’s gone.”
In an interview with The Wall Street Journal, the Italian head of the European Central Bank suggests that austerity is the new normal on the old continent. The social democratic welfare model of lifelong employment and generous safety nets is “already gone,” he said, citing high youth unemployment figures in the eurozone’s periphery.
In Greece and Spain, half of the workers under the age of 25 are unemployed. The jobless rate in Italy and Portugal hovers around 30 percent.
Labor market reforms are essential if the highly indebted economies in the south of Europe are to recover. In Britain, Germany and other “core” nations, it is often easier for employers to dismiss and hire workers.
In Germany and the Netherlands, trade unions have also been more willing to freeze wages and accept temporary job contracts to weather the worst of the recession. Such flexibility is supposed to be copied elsewhere as eurozone countries have enacted a pact to boost competitiveness.
Despite the recent emphasis on enhancing growth, Draghi said Europe must remain committed to short-term fiscal consolidation.
“Backtracking on fiscal targets would elicit an immediate reaction by the market,” he warned, and make it more expensive for countries like Italy and Spain to borrow.
Draghi acknowledged that spending cuts can hurt the economy in the short term but argued that the negative effects are offset by structural reforms.