ECB President Draghi Committed to Boosting Eurozone Inflation

October 10th, 2014   Guest post by Jay Hawk at Orbex.

ECB President Mario Draghi gave a speech at the Brookings Institution in Washington D.C. yesterday, in which the central bank head stressed the urgent need to increase the Eurozones potential output through reforms. Quoting a letter from John Maynard Keynes to then President Franklin D. Roosevelt in 1933, he said that, “without reform, there can be no recovery”. Draghi also stated that, Put simply, I cannot see any way out of the crisis unless we create more confidence in the future potential of our economies, given demographic trends, raising structural growth will have to take place primarily through productivity.

Draghi also said that the ECB is in transition from using a monetary policy framework founded on the passive provision of credit to a more active and controlled role managing the banks balance sheet in order to increase inflation in the Eurozone. He hinted that this could involve changing the size or composition of the banks unconventional monetary policies. Nevertheless, no new measures for stimulating the Eurozone economy were discussed.

Draghi concluded his speech by saying that, The issue is not really whether policies to support demand should precede or follow policies to support supply. Reform and recovery are not to be weighed against each other. The whole range of policies I have described aims simultaneously at raising output towards its potential and at raising that potential. This combination of policies is complex, but it is not complicated. Each of the steps involved is well understood. The issue now is not diagnosis, it is delivery. It is commitment. And it is timing. I recently said of monetary policy that, at the current juncture, the risks of doing too little exceed the risks of doing too much. If we want a stronger and more inclusive recovery, the same applies to doing too little reform.

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