Mario Draghi says strategy would end youth unemployment crisis in Europe and stimulate economic growth
The head of the European Central Bank has called on European leaders to embrace a growth pact that would end the youth unemployment crisis that it gripping the region, and breathe life into its struggling economy.
Speaking after the ECB left interest rates unchanged on Wednesday, Mario Draghi said he supported calls for a new strategy to stimulate economic growth in Europe. A key plank of that strategy must be to reform Europe’s labour market, so that younger workers no longer bear the brunt of unemployment during a downturn.
Draghi criticised the current European labour market, saying it is structured against young people.
“Distortions in the labour market have caused the youth sector of the labour market to be flexible while the rest of the labour market is fully protected,” Draghi told a press conference in Barcelona. “So when you have a situation that causes the unemployment rate to rise, it falls harder on young people.”
Efforts to reform Europe’s employment laws have been met with resistance by unions, who fear employers taking advantage of the crisis to erode hard-won rights and protections. In Italy, prime minister Mario Monti has struggled to tear up laws that make it harder to fire workers. Monti’s message that a more “flexible” labour market would mean more jobs for younger people was not well received, even by those who would benefit.
But with youth unemployment in the eurozone hitting 21.4%, and over 50% in Spain and Germany, the situation appears to have reached a crisis.
The idea of a European growth compact has gathered more support in recent weeks as economic data showed that the eurozone economy was weakening more than thought, with manufacturing output falling sharply in April. Draghi denied that the concept was at odds with the current fiscal compact, which focuses on driving down deficits through austerity measures, claiming that fiscal sustainability can be a pillar for growth.
Thousands of police were deployed on the steets of Barcelona to guard against protests, although the only demonstrations were organised by Spanish students who held a peaceful anti-austerity march. Draghi said that he sympathised with Europeans who are suffering in the crisis, adding that policymakers were doing everything they could. The ECB usually meets in Frankfurt, but decamped to Spain as part of a policy to visit other European cities.
Economists are divided over when the ECB might cut interest rates. Some believe they will remain at 1% through 2012, but Nick Beecroft of Saxo Bank believes a cut could come soon. Beecroft pointed to Draghi’s admission at the end of the press confence that the latest business surveys have suggested that the European economy is weakening.
“He tried to obfuscate, he avoided using the sort of code words which characterised Trichet’s reign but, in the end, right at the last minute, ECB President Draghi couldn’t hide it-the ECB is worried about growth and will cut later in the summer,” Beecroft commented.