Investing in infrastructure could create jobs but governments need to rein in day-to-day spending instead of hiking taxes
EUROPEAN Central Bank chief Mario Draghi yesterday insisted policymakers must put growth "back at the centre of the agenda" -- but stressed that this didn't mean there could be any let-up in painful spending cuts across the eurozone.
The comments came as the ECB chief laid out his vision for a "growth compact" to complement the infamous fiscal compact that lays out rules for how European countries can run their budgets.
Policymakers in Frankfurt have been repeatedly criticised for favouring austerity over growth, since they've encouraged countries to cut spending so their budget deficits fall, rather than increase spending to jump-start growth.
"I agree... we have to put growth back at the centre of the agenda," Mr Draghi told journalists yesterday, as he admitted that growth was expected to recovery only "gradually during the course of the year".
Growth policies often mean pumping more money into an economy to stimulate demand. Mr Draghi's vision for a growth compact includes "completing the single market" for products as well as labour market reforms that would tackle the "inequity" of youth unemployment across the eurozone.
The euro area could also "see what we can to do create jobs", he ventured, suggesting measures such as increased investment in infrastructure or new projects from the European Investment Bank.
"The most important is to specify a plan for the euro... how do we see ourselves in 10 years from now, what has to be in place," he said, adding that countries would have to "accept the delegation of fiscal authority from national governments to some kind of centre".
He insisted that there was "absolutely no contradiction" between the growth compact and the fiscal compact that's currently in train and stressed that "several" governments must be even "more ambitious" in their targets.
"I think perseverance is very important to reap, in the end, the gains," he added, stressing the need for governments to "enhance" the prospect for growth by embarking on structural reforms and the ability for governments to get a better outcome by cutting day-to-day spending instead of hiking taxes or cutting capital projects.
Mr Draghi also invoked the lessons of the 1970s and 1980s for his thesis, saying that experience then showed that slowing down budget cuts "wasn't a great help".
In their monthly statement, the ECB's governing council warned that the economic outlook was subject to "downside risks", particularly those related to "an intensification of tensions in euro area debt markets and their potential spillover to the euro area real economy as well as to further increases in commodity prices".
"Available indicators for the first quarter remain consistent with a stabilisation in economic activity at a low level," they said. "We expect the euro area economy to recover gradually in the course of the year, supported by foreign demand."
While the ECB didn't announce any new policy initiatives yesterday, Mr Draghi said it would be "premature" to talk about exiting so-called 'non-standard measures' like unlimited liquidity for banks.