Draghi eyes recovery in second half of the year

Updated: Thursday, 07 Mar 2013 18:06

The head of the European Central Bank has said the euro zone economy is stabilising and that a "gradual recovery" should start in the second half of the year.

Mario Draghi spoke after the bank held off providing further stimulus to the lagging euro zone economy as it left its benchmark interest rate unchanged at 0.75%.

He said the ECB was cutting its forecast for growth this year to -0.5% from -0.3%.

That is because of a carryover from an unexpectedly large drop in the last quarter of 2012. He added that "the projected path of the recovery remains unchanged" despite the changed projection.

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Mr Draghi also downplayed the effect of the inconclusive election in Italy on the euro area's efforts to work its way out of its crisis over too much government debt.

The ECB chief said markets "understand that we live in democracies" and, after an initial negative reaction, were less agitated by the election than politicians and the news media.

He said Italy had already implemented cuts to reduce the deficit and that "will continue on automatic pilot." Market contagion "has been muted compared to what might have been a year ago,'' he added.

On Ireland, the ECB chief said that the Government has undertaken ''significant action'' on several fronts, adding that he never tires of saying so. But he cautioned that there are still actions to be taken on the banking front here.

Mr Draghi was also asked when the "last word'' will be spoken on the Irish promissory note deal. Giving no definitive response, he said the bank have a periodic review of compliance - probably at the end of the year.

Mr Draghi also today urged the new Cypriot government to look at how it is combating money laundering.

Euro zone finance ministers pledged this week to agree a bailout for Cyprus, hit primarily by its exposure to Greek debt, by the end of March, but details of how the rescue will be financed are yet to be sorted out.

One stumbling block has been concern about Cyprus's implementation of its money-laundering laws. The new government on the island has agreed to an independent review.

Admitting that the issue was not directly in the ECB's remit, Draghi volunteered that it was a key issue at a news conference.

"It is very important that the Cypriot government takes this opportunity to revisit the anti-money laundering legislation - not so much in terms of the legislation, but in accepting international oversight on how effectively this legislation has been implemented," he said.

ECB boss wants actioon on "tragedy" of unemployment

The European Central Bank President also urged indebted governments to move beyond spending cuts and tax hikes and introduce reforms that would boost growth and reduce the "tragedy" of unemployment.

Mr Draghi praised the progress euro zone countries in cutting their average government deficit to 3.5% of economic output overall last year. That is down from 4.2% the year before.

The reduction was done through spending cuts and more taxes. But these austerity methods have had the knock-on effect of hitting growth and sending the jobless rate to 11.9%, highest since the euro was launched in 1999.

Draghi went out of his way to urge steps for growth, by shaking up hiring rules and regulations affecting the products companies make.

The goal is to encourage growth and new hires by companies in countries that have left large numbers of 20-somethings on the sidelines of their stagnant economies.

He said it was "of particular importance" to tackle youth joblessness. Unemployment is "a tragedy, and youth unemployment is an even bigger tragedy," Mr Draghi said at today's press conference in Frankfurt.

In Greece, the unemployment rate for the under-25s is 59% while in Spain it is 55%.

The ECB president said that austerity must be followed up with a "comprehensive structural reform agenda to improve the outlook for job creation, economic growth and debt sustainability."

His comments come as euro zone leaders appear to be reconsidering harsh austerity as a way of combating the crisis.

While governments are still under pressure to cut deficits, euro zone finance ministers meeting earlier this week indicated they were now willing to give countries more time to close deficits, lessening the impact of cuts on growth.

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