Draghi: "There is nothing comfortable about decline. Let Europe fight to remain as it is today"

“It would be comforting to believe that the problems are not as important as they seem and that, as a rich continent, Europe can enter a phase of comfortable and managed decline. But in reality there is no nothing comfortable in this perspective. If the EU continues to record an average growth rate in labor productivity since 2015, given our aging society, in 25 years the economy will be the same size as today. This means a future of stagnant tax revenues and fiscal surpluses to prevent rising debt ratios. However, we are faced with spending commitments that will not reduce in proportion to GDP: unfunded pension liabilities in EU countries range from 150% to 500% of GDP, the 750-800 billion euros per year that the Commission and the ECB estimate will be necessary to invest in the energy sector, defence, digitalisation, research and development, without considering important objectives such as climate adaptation and environmental protection. All these are investments that will determine whether Europe remains inclusive, safe, independent and sustainable. We all want the society that Europe promised us, a society in which we can uphold our values ​​regardless of how the world around us changes. But we do not have an immutable right for our society to always remain as we wish it. We will have to fight to maintain it”. This was stated by the former President of the ECB and the former Italian Prime Minister, Mario Draghi, in his speech at the annual Symposium of the Center for Economic Policy Research.

“Therefore – comments Draghi – both structural and macroeconomic policies must change increase endogenous growth in Europe. Market reforms are necessary to ensure the full effect of macroeconomic policies, while fully effective macroeconomic policies are needed for market reforms to produce maximum productivity growth. Observe that today the meaning of structural reforms has changed. Ten years ago, the term was largely limited to increasing labor market flexibility and squeezing wages. Today, it means increasing productivity growth without moving jobs, but rather by reskilling people. Many different measures have been presented in the report that can help increase productivity. But the European single market and capital market are crucial, as they support the basic mechanisms that drive productivity growth.”

“If these reforms in the structure of the markets were implemented – hopes the former President of the ECB – we would already go a long way towards achieving this change. Productivity would increase, the effectiveness of demand policies would increase and this would have repercussions on growth even stronger than productivity.But we know that it will take time for such reforms to bear fruit. So, we should also reflect on whether macroeconomic policies can be used more efficiently in the meantime issued the debt jointlycould create additional fiscal space that could be used to limit periods of below-potential growth. But we cannot start down this path if changes in the structure of markets are not already underway that would increase potential growth rates in the medium term.”

Draghi concludes: “Without a common debt, we will also have to shift our political action from changing the orientation of fiscal policy to improving its composition – increasing public investments – and coordination between member states. This also creates scope for increasing Above all, taking advantage of the fiscal space within the new EU fiscal rules would create ample scope to increase investment. The ECB estimates that, if all countries made full use of the seven-year adjustment period, they would be available for investment additional 700 billion euros – a significant share of public investment needs”.