ECB urges easing of tax hikes to boost spending
EUROPEAN Central Bank chief Mario Draghi urged governments to ease off on tax increases to boost people's disposable income.
Mr Draghi stressed fiscal consolidation measures should be as growth-friendly as possible, with focus placed on cutting capital spending.
The ECB chief told the French National Assembly that there are limits to what monetary policy can achieve.
"For all euro area countries, a new approach is needed," Mr Draghi said.
"An approach that can deliver growth and jobs, and sustain social models, without creating an unsustainable debt burden for future generations.
"For instance, relying less on tax increases would help sustain citizens' disposable income.
"Prioritising capital investment over current spending would do more to lay the foundations for future growth."
He said structural fiscal reforms, such as changes to pension systems, would help support fiscal sustainability without negative effects on the economy.
Mr Draghi also said policies to raise competitiveness should also be pursued, including removing burdens on businesses such as complex labour and tax laws.
"We are already seeing progress on rebalancing in the euro area – unit labour costs are coming down in countries where they had grown excessively; current account deficits are narrowing where there had been large imbalances in the past; and export growth is generally picking up in countries under strain," he said.
"But in many euro area countries, the gap the between wages and productivity is still out of line with competitiveness. To increase employment, this gap should be closed and all the many policy levers that can contribute to this should be used."
Mr Draghi said countries should not hesitate in ceding sovereignty to Europe where it is in the best interests of their citizens.
He said only if there is trust that each member state plays by the rules can a union of mutual solidarity become possible.
The ECB had done a great deal to support the eurozone economy including reducing its main interest rate, as well as introducing its bond-buying programme, Outright Monetary Transactions (OMT).