The recent reports on the economic situation of the EU states pushed Mario Draghi, the president of the European Central Bank, the make a bold and healthy statement on Friday at the annual Jackson Hole central bank gathering. Mario Draghi wants less austerity measures in the Euro-zone. The symposium gathers some of the most powerful financial players in the world, who assemble once a year since 1978 and since 1981 particularly in Jackson Hole, a Wyoming mountain resort. This year’s theme is “Re-Evaluating Labor Market Dynamics.”
Mario Draghi announced that austerity measures need to be taken down, as they do not provide adequate solutions for the present economic situation. Most economic indicators convey a demand lower than expected by most economists. “Without higher aggregate demand, we risk higher structural unemployment, and governments that introduce structural reforms could end up running just to stand still,” he said.
The European Central Bank advanced a series of proposals in June. The bank plans to undertake every necessary step in order to provide a financial environment where demand can increase. For now, Draghi is concerned about the low level of inflation. High levels of inflation usually indicate instability and a drop of currency value. However, reduced, stagnated or negative inflation levels are detrimental to economies as well. In the last 10 months, the overall Euro-zone economy had an inflation level of less than 1 percent.
The U.S are doing much better from an economic point of view. However, the recent Conference of Mayors revealed through a report that the wage gap increased even more after the recession ended, even if the lost jobs have been recovered.
Mario Draghi wants less austerity measures and he is ready to weaken the euro
A combination of factors and solutions could help the sluggish euro-zone recover. First, the euro is weak, which could help increase consumption, as well as exports. Secondly, the central bank aims to revitalize the market for securitized loans. The bank may raise interest rates from 2015, in an effort to weaken the euro against the dollar.
The recent international tensions sparked by military activities in Ukraine took their toll. Trade with Russia, a large market, has been intermittent in the last period, due to the fact that each side imposed economic sanctions.
Mario Draghi wants less austerity measures and asks for more structural economic reforms. He claims that a solution is to make labor markets more flexible, Reuters reports. Workers were the ones to face the worst consequences of harsh austerity measures, so why should they give up more rights to make Draghi happy? That may be another bland austerity measure which will only deepen economic insecurities and, consequently, further decrease demand.