Question: I have two questions. The first one is: do you see any risk of deflation in some countries in the euro area?
The second question is, yesterday, the IMF issued another mea culpa with regard to the austerity measures which were imposed on Greece. I wondered if the ECB also had some mea culpa to offer.
Draghi: Well, not really.
First, on deflation: ... we do not see it. In addition, some of these changes I hinted at are actually changes in relative prices, so they are positive. They show that there is real adjustment taking place, which can be seen in the export levels, which have gone up in some of the stressed countries.
On your second point, on the issue of mea culpa, no, I do not think we do; in fact, one good thing, as far as I understand, about this IMF paper is that the ECB is not being criticised. So, that is one thing. There has been a statement by the European Commission this morning which responds to this IMF paper. It makes several points and I do not want to go back over these points. I would not to say something different. Looking at the present situation, Greece has undertaken an extraordinary adjustment process. There is ownership of this adjustment by the government and we have to acknowledge the progress that this country has made. If we think back to a few years ago, it would have been unthinkable. Of course, if this paper by the IMF – which I have not read – decides to offer mea culpa and identifies the reasons for mistakes that have been made and other things, we will certainly have to take them into account in the future. However, often this mea culpa is in fact, as I will call it, a mistake of historical projection, i.e. you tend to judge the past by today’s standards. We cannot forget that four or five years ago, when the discussions about the adjustment in Greece were taking place, the climate was, in general, much worse. There was a fear of contagion there and very high volatility. That is, in a sense, where the fragmentation of the euro area really started. So, it is always very hard to pass ex post judgement on what happened four years ago. Having said that, rather than looking backwards, why do we not look forward and take stock of the extraordinary progress made and the positive path that has been taken?
Question: You talked about dramatism a few minutes ago and I am afraid I will be a little bit dramatic now because I am from a country that has an unemployment rate of 27%, which is a number of a great depression, a fiscal policy that is contractionary and a monetary policy in Spain and also in other countries that is also contractionary because credit is not available to small and medium-sized companies. Are you telling the Spanish, Portuguese, Irish or even Italian people that the ECB can’t do anything else with inflation actually lower than 2%?
Draghi: Well, I am not sure I get the point, but I think I get it.
First, the fact that inflation is low is not, by itself, bad; with low inflation, you can buy more stuff.
Second, we don’t see deflation and that is what we have to fear. We don’t see that yet.
Third, fiscal consolidation is and remains unavoidable. It should be clear I think to everybody that you cannot have growth with endless debt creation. Sooner or later, you are going to be punished and the whole thing stops and that’s exactly what happened after the financial crisis in many countries.
Fourth, are there ways to make fiscal consolidation growth-friendly? The answer is yes. Fiscal consolidation in most countries has taken the shape of increasing taxes and there are many reasons for that. Often this was done in an emergency situation or unfortunately because the easiest thing to do is to raise taxes. Now that is not growth-friendly and it is not growth-friendly because it happens in parts of the world where taxes are already very, very high. So what would be a better way? A better way would be the difficult way, namely to reduce unproductive government expenditure and reduce taxes together. But once you have done that – and in a sense I hinted at this before – you also have to ask yourself why these countries were not competitive. Why did they have to rely for growth in the good times, or “fairyland” times, on the protected sectors that were shielded from international competition? And then you ask yourself what should these countries change to become more competitive? And then what adjustments are needed in order to achieve this objective? The encouraging thing is that we see that most countries, if not all of them, are in this process, which of course is very painful, and I don’t think I miss one opportunity to make sure that you all know how aware of this we all are in the ECB.
No comments:
Post a Comment