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European Central Bank President Mario Draghi coupled a new monetary stimulus package with an aggressive call on governments to join his efforts to support the economy.
While the Governing Council was divided on some of the measures unveiled in Frankfurt, Draghi was keen to emphasize that policy makers were united on one point: Fiscal policy must step up.
The message from the ECB president isn’t new, but he certainly pushed it hard as he prepares to end his eight-year term next month. Looking back, he indicated that euro-area fiscal policy has been too tight, leaving Draghi and his colleagues to do all the heavy lifting.
“Almost all the things that you see in Europe, the creation of more than 11 million jobs in a short period of time, the recovery, the sustained growth for several quarters, were by and large produced by our monetary policy. There was very little else… Now it’s high time for the fiscal policy to take charge.”
The ECB’s actions on Thursday included another interest rate cut -– taking the deposit rate to minus 0.5% -- plus a new round of quantitative easing and more generous terms for long-term bank loans.
At his press conference after the decision, Draghi even offered a subtle message for countries such as Germany, where the ECB’s negative interest rates have angered savers and banks. Its government is under pressure to spend more given the country’s relatively low debt levels and a budget surplus. German 10-year yields are at minus 0.56%, and have been below zero for four months.
Draghi’s point is that if people want positive interest rates to return, they can speed that up by taking advantage of ECB loosening and record-low borrowing costs to spend more and boost demand.
“Negative rates are necessary for monetary policy. It has created a lot of positive effects. How do we speed up these effects so interest rates can go up again? The answer, once again, is fiscal policy.”
In a new development, Draghi even singled out a country, noting the Dutch government’s 50 billion-euro ($55 billion) investment program. “It’s a good time to activate it,” he said.
And Draghi, though he has only weeks left in the job, indicated he’s not done on the issue just yet.
“We made the case for fiscal policy to sustain demand,” Draghi said. “We are making this case and we will make this case on and on even more frequently in the future.”
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