Draghi rules ECB Action 

Inflation expectations have deteriorated across the euro area and signaled policy makers are ready to add fresh monetary stimulus, according to the European Central Bank president, Mario Draghi. Yet officials aren’t finished with measures to stave off Japan-style stagnation.

Draghi has previously said that any worsening of the medium-term inflation outlook would provide a reason for the ECB to carry out broad-based asset purchases, or quantitative easing.

The 18-nation economy stalled in the second quarter and unemployment remains near a record high. Draghi’s concern is that the malaise prompts investors, consumers and companies to pull back spending in anticipation of even weaker inflation, tipping Europe into a deflationary spiral that would be hard to reverse.

The stalled economy and slowing price gains also come against the backdrop of escalating sanctions against Russia because of its support of separatists in Ukraine, raising the risk to regional trade.

Draghi intensified pressure on European governments to play their part, saying “it would be helpful” if those with room to ease fiscal policy did so.

“We need action on both sides of the economy: aggregate demand policies have to be accompanied by national structural policies,” he said. “We should not forget that the stakes for our monetary union are high.”

He proposed four areas in which fiscal policy could be improved: better use of flexibility within existing European Union rules; lower taxes; stronger fiscal coordination between governments; and EU action to ensure a large public investment program.

 

Source: Bloomberg

 

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