Euro again fell against the dollar and yen yesterday after assurance from the ECB (European Central Bank) president Mario Draghi that the economic recovery in the euro zone would be gradual but fragile. The statement is in the line of his earlier statement that he gave on the ECB’s accommodative monetary policy.
Accommodative Monetary Policy to Continue
Mario Draghi admitted that the ECB will firmly maintain a loose monetary stance for as long as needed; however, he also urged euro area governments for deficit reduction to boost investment. In his speech at French National Assembly in Paris, Draghi said the ECB is open for all possible instruments that it may feel proper to adopt.
He however ruled out for exiting the accommodative monetary policy. On the other hand, financial experts lament that countries such as Italy, Spain, Portugal and Greece have seen a sharp rise in borrowing costs which is a consequence of a decline in global liquidity that prompts international investors to move to safer destinations.
Draghi advocates for fiscal consolidation as to him it is necessary to contain debt levels. He also admitted that relying less on tax increases would help sustain citizens’ disposable income and prioritizing capital investment over current spending would do more to lay the foundations for future growth.
Unemployment is a Major Problem
Unemployment is a major issue for the euro zone as it increased to a record 12.2 percent in April. Concerned about increasing unemployment, Draghi urged the governments to reduce the rate and maintain social models without creating an unsustainable debt burden for future generations.
The ECB president also admitted that there is a limit for monetary policy when it comes to achieving growth as according to him it cannot create real economic growth. He also lamented that all initiatives may not be able to meet the goals if firms lose competitiveness.