Draghi on growth
“The Brunner condition remains valid: a central bank can maintain monetary stability only if governments keep their debt under control. What has changed is the way in which this condition can be met. A fiscal policy framework cannot cope alone when growth is weak. The further integration advances, the more firmly growth can stay above interest rates and the more the central bank will be shielded from political pressures. Growth and independence therefore reinforce each other. A generation ago, Europe equipped itself with a monetary constitution that has resisted all subsequent crises. It is based on an independent central bank, with a clear priority on price stability, and on budgetary discipline. That framework remains the right one", underlined Draghi, before concluding: "but for the constitution to last over time, legislators at national and European level must now take full responsibility for growth as the objective of the Union. If they do so, they will put Europe on the path to renewal".
"Fixing budgets is inevitable but not just with cuts and taxes"
"If governments finance their own spending increases without further consolidation or reform measures, the average European debt-to-GDP ratio will reach 130% by 2040. Weighted by the size of the economies, this ratio will reach 155%. Some fiscal consolidation in the medium term is inevitable. However, if this were to happen exclusively through spending cuts and tax increases, it is unlikely to produce the necessary results," said Mario Draghi. He then added that "Eurozone growth lags behind the interest rates it faces."
"Controlling inflation is a priority of monetary policy"
In the current context, "what can monetary policy do? The absolute priority is to control inflation. In a phase of worsening debt dynamics, markets will begin to test the commitment of the central bank. If they come to doubt that price stability takes precedence over public financing, the inflation premium will return, financing costs will increase and budget positions will worsen", says Mario Draghi. "The second priority is to prevent growth from being weaker than it should be."
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Draghi: "Rapid adoption of AI and the single market increase growth"
“Over the past three decades, typical consolidation in Europe has involved an overall commitment of 3-4% of GDP. Weighting countries by the size of their economies, those that must comply would now have to improve their primary balances by around 6-7% of GDP, almost double. And even the smallest effort has never been politically easy. The ability of governments to implement consolidation therefore depends on growth. Of the two forces that determine debt, the interest rate is increasingly set lower outside Europe. Growth is the only thing that Europe can still influence," said the former ECB president. “Half a percentage point more growth per year, sustained until 2040, with some of the additional income going to savings, would put Europe around a third of the way to sustainable debt. Growth of that magnitude is within our reach. Rapid adoption of AI could add up to 0.4 percentage points to total factor productivity growth over the next decade, while domestic and single market reforms together could add around another half percentage point per year,” he underlined.
"EU should put 100 billion from its budget for AI"
“Ensuring access to computing capacity benefits all Europeans, but this capacity is insufficient when each country acts alone. The EU hosts less than 5% of the world's computing capacity in the field of artificial intelligence,” says Draghi. "A recent study estimates that to bring this share to 15% by 2030, roughly in line with the EU's weight in the world economy, around 1.3 trillion euros of investments would be needed. The public sector share needed to reduce the risk of this investment, estimated at around 100 billion euros, is one of the main candidates to be financed through the EU budget." Even the full amount would only require about 5% of the next budget, currently under negotiation, and would not burden national budgets while they are being consolidated,” he added.
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