ECB's Draghi signals departure from austerity focus

By Dow Jones newswires

For its part the ECB is willing to take more stimulus measures if needed to keep low rates of inflation from becoming embedded in expectations of future price growth, he said. "It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this, while taking into account our specific initial conditions and legal constraints," Mr Draghi said in his prepared remarks.

The Federal Reserve is widely expected to raise interest rates by the middle of next year, whereas the ECB is expected to keep its main lending rate near zero for years. "We stand ready to adjust our policy stance further," Mr Draghi added, an indication that large-scale purchases of public and private debt, known as quantitative easing, remain an option to keep inflation from staying too low for too long.

Turning to fiscal policy, Mr Draghi said policy makers should use the flexibility embedded in European budget rules "to better address the weak recovery and to make room for the cost of needed structural reforms. " He also backed proposals for a significant boost in public investment.

The euro zone's unemployment rate was 11. 5 per cent in June, far higher than in the US, UK and Japan. "The risks of 'doing too little'" and allowing temporary unemployment to become more entrenched "outweigh those of 'doing too much'-that is, excessive upward wage and price pressures," Mr Draghi said.

European Central Bank President Mario Draghi on Friday signaled a departure from the austerity-focused mind-set that has dominated economic policy-making in the euro zone since the onset of the region's debt crisis nearly five years ago, as officials struggle with stagnant economies, weak prices and high unemployment.

Read more here: Business Spectator

    

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