European states struggle with Draghi’s challenge
MILAN, Italy
EUROZONE finance ministers on Friday said they were willing to help the European Central Bank in its plan to save the economy. How much they can do in practice, however, remains unclear.
The ministers met for the first time since ECB President Mario Draghi sketched out this month what has been dubbed “Draghinomics”: a three-pillared strategy including more stimulus from the central bank, added government spending and pro-business reforms to cut bureaucracy and make economies more productive.
The ECB covered the first pillar, offering a range of new stimulus measures at its last meeting. Governments from the 18 euro countries hold sway over the other two, but have been either reluctant or unable to act.
Jeroen Dijsselbloem, the Dutchman who heads the eurozone finance ministers’ meetings, said Friday that governments are now ready to shift their focus from stabilising financial markets to promoting growth.
Eurozone states, he said, should complement the ECB’s efforts to boost the economy with “a credible mix of fiscal policies, structural reforms and investment.”
”We all agree the euro area needs to increase this growth potential and create more jobs,” Dijsselbloem said.
Europe’s economy showed no growth in the second quarter. That followed four quarters of unsatisfying recovery from a crisis over high government debt. Unemployment remains at a painful 11.5 per cent.
Draghi, sitting nearby, expressed satisfaction that there was agreement in the meeting that ”to see investment return we need structural reform”.
To get the economy going, governments will have to back up their words with actions. Some of the key reasons they have not so far:
— With tight EU rules on public deficits, there’s little room for more government spending on projects that would help economic growth.
— The push for pro-business reforms in two of the more troubled countries, France and Italy, faces political headwinds.
— Germany, the dominant eurozone country, has backed calls for more investment spending, but excluded borrowing money to do it.
— There is talk of an EU-level investment fund to pay for infrastructure such as roads and bridges, but the details are far from filled in.
In Milan, the ministers’ focus on reforms included the need to reduce the tax burden on labour, noting that the eurozone’s overall tax burden is above the average for developed countries in large part due to the tax wedge on labour.
They did not, however, say they would ease European Union limits on borrowing. For some countries, borrowing more money to invest can help economic growth if the money is spent fruitfully.