You could forgive European Central Bank (ECB) chief Mario Draghi for being a pessimist about the eurozone after years of crisis, but his speech on Friday argues that he’s not satisfied with the current growth rebound.
He wants Europe to set about “unleashing an untapped potential for substantially higher output, employment and welfare.”
This speech is vintage Draghi in some ways. When the eurozone economy isn’t going too badly and there’s little pressure on him to announce more monetary easing, he’s most comfortable talking about one subject: Structural reform. He’s got no powers or authority over this sort of thing, other than to hector national governments.
Today’s no exception, with Draghi using the word “reform” 85 times outside of the title and footnotes of his speech. He’s a big fan of reform, and he wants to make sure everyone knows it — he’ll remind you over and over again, if necessary.
Here’s the crux of his speech:
The important point, however, is that in the euro area today structural reforms are not about creating minor efficiencies or marginal gains. They are about unleashing an untapped potential for substantially higher output, employment and welfare. And in the current environment, this would play a crucial role in ensuring that the ongoing cyclical recovery becomes a stronger, structural recovery.
He’s also arguing that now is the perfect time to make those reforms, with a cyclical upturn in the eurozone. Some economists actually thought Europe was slipping toward its third post-financial crisis recession at the end of last year, but instead it recorded its strongest quarter of growth since 2011 in Q1 this year.
That’s down to a number of different things — most notably, the fall in oil prices, and the European Central Bank’s quantitative easing (QE) programme, which was bigger than most people expected. Goldman Sachs analysts have also noted an easier fiscal stance in Italy, Germany and Spain which would help to prop the recovery a little (or at least make sure it isn’t snubbed out).
Here’s his conclusion:
What the cyclical recovery does achieve is to provide near perfect conditions for governments to engage more systematically in the structural reforms that will anchor the return to growth. Monetary policy can steer the economy back to its potential. Structural reform can raise that potential. And it is the combination of these demand and supply policies that will deliver lasting stability and prosperity.
One of Draghi’s slides suggests even with the euro crisis and recessions, Europe could have set itself on a better growth path than the one it’s managed:
All in all, Draghi isn’t satisfied with Europe’s recovery progress so far — and you can expect to hear a lot more from him about reforms in the future.