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24 February 2012

WSJ: Europe's banker talks tough


European Central Bank President, Mario Draghi, warned beleaguered eurozone countries that there is no escape from tough austerity measures and that the Continent's traditional social contract is obsolete.

Mr Draghi reflected on how the region's travails were pushing Europe toward a closer union. He said Europe's vaunted social model—which places a premium on job security and generous safety nets—is "already gone", citing high youth unemployment; in Spain, it tops 50 per cent. He urged overhauls to boost job creation for young people.

There are no quick fixes to Europe's problems, he said, adding that expectations that cash-rich China will ride to the rescue were unrealistic. He argued instead that continuing economic shocks would force countries into structural changes in labour markets and other aspects of the economy, to return to long-term prosperity.

The ECB chief's views on austerity programmes will be tested at the voting booth in coming months. Greece and France are due to hold elections this spring, which may result in new leaders less willing to embrace the bank's stance fully.

A number of European leaders, led by Italian Prime Minister Mario Monti, want to shift Europe's focus away from spending cuts towards stimulating growth. Mr Draghi argued that austerity, coupled with structural change, is the only option for economic renewal. While government spending cuts hurt activity in the short run, he said, the negative effects can be offset by structural overhauls.

Full article



© Wall Street Journal


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