09 September 2014

Draghi at Jackson Hole: A policy shift?

A recent European Voice article comments upon Draghi's intervention at Jackson Hole in the summer.

Draghi’s speech was bold for three reasons

First, he took a side in the ongoing debate about the appropriate policy response to the eurozone’s current stagnation. He emphasised that, along with structural reforms, support for aggregate demand is needed, and that the risk of doing too little in this respect clearly exceeded the risk of doing too much.

Second, he confirmed that the ECB was ready to do its part to boost aggregate demand, and mentioned asset purchases, or quantitative easing, as a necessary tool in a context in which inflation expectations have declined below the official 2% target.

Third, and to the surprise of most, Draghi added that there was scope for a more expansionary fiscal stance in the eurozone as a whole. For the first time, he expressed the view that the eurozone had suffered from the lower availability and effectiveness of fiscal policy relative to the United States, the United Kingdom, and Japan. He attributed this not to pre-existing high public debts, but because the ECB could not act as a backstop for government funding and spare fiscal authorities the loss of market confidence. Moreover, he called for a discussion among member states of the eurozone’s overall fiscal stance.

Draghi Speech (August 22 2014)

European Voice article (Subscription required.)

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