European Central Bank President Mario Draghi reiterated his call for structural reforms in the euro area and pledged to expand stimulus measures if needed.
“I am uncertain there will be very good times ahead if we do not reform now,” Draghi said in a speech at the Brookings Institution in Washington. “We are ready to alter the size and/or the composition of our unconventional interventions, and therefore of our balance sheet, as required.”
The ECB has introduced a series of measures from negative interest rates and long-term loans to asset purchases to fend off deflation and rekindle growth in the currency bloc. At the same time, some European governments have dragged their feet on improving competitiveness and reducing unemployment.
The 18-nation economy stagnated in the second quarter and the ECB predicts only a modest expansion through the end of the year. Inflation isn’t seen returning to the goal of just under 2 percent before 2017.
“Potential growth is too low to lift our economies out of high unemployment. It is also too low to allow us to overcome quickly the debt burden left over from this crisis and the period that preceded it,” said Draghi, who is in Washington for the annual meetings of the International Monetary Fund and the World Bank. “While stabilization policies that raise output toward potential are necessary, they are not enough. We need to urgently raise that potential. And that means reform.”
The IMF cut its euro-area growth forecasts for this year and next, predicting expansions of 0.8 percent and 1.3 percent, respectively, and urged the ECB once more to consider buying government debt to fend off deflation. The fund sees inflation accelerating from 0.5 percent in 2014 to 0.9 percent in 2015.
Draghi said the ECB has “acted aggressively” to ease the stance of monetary policy and repair the transmission channel to the real economy. He said he expects credit to pick up “soon next year.”