Draghi calls on governments to 'unleash growth' to support ECB

[FRANKFURT] Mario Draghisaid euro-area governments must act to stem rising public discontent, in his latest warning to politicians that the European Central Bank can't sustain the region's recovery alone.

"Europeans are calling on our institutions to bring tangible benefits to their everyday lives," the ECB president said in testimony to European Parliament lawmakers on Monday.

"Actions by national governments are needed to unleash growth, reduce unemployment and empower individuals, while offering essential protections for the most vulnerable."

Mr Draghi has grown increasingly vocal in his calls for elected politicians to boost spending and reform their economies as the ECB struggles to stoke inflation. The central bank's program to buy 80 billion euros a month of debt faces scarcity concerns and its negative interest rates have prompted criticism by banks and savers.

"Low rates are a symptom of the underlying economic situation," Mr Draghi said. "Other policy actors need to do their part, pursuing fiscal and structural policies which will contribute to a self-sustaining recovery and increase the economic growth potential of the euro area."

Executive Board member Benoit Coeure addressed the topic earlier in a speech in Rome, where he said the European Union is going through a "difficult phase," and that national governments need to live up to their responsibilities to cut unemployment and boost the growth potential.

"If fiscal and economic policies do not in fact play this role, we risk being trapped in a low growth, low interest-rate equilibrium," Mr Coeure said. "Moving from interest rates being 'low for long' to being 'low forever' would severely limit the room for maneuver for conventional monetary-policy tools but, even more worryingly, it would threaten the contract between generations as well as risk tearing up our social fabric."

Policy makers are so worried about the slow pace of structural adjustments that they've created a task force on economic reforms to consider possible ideas. In the meantime, the Governing Council has urged governments to pursue growth-friendly fiscal policies.

After the last monetary-policy meeting on Sept 8, Mr Draghi went further, singling out Germany in his comments. The nation, which is running budget and current account surpluses, has "fiscal space" and "should use it," he told reporters. His remarks, which have been rebutted by German Finance Minister Wolfgang Schaeuble, could make for a lively debate on Wednesday when the ECB chief attends a closed-door meeting with German lawmakers in Berlin.

Another potential topic of contention is the ECB's reviews of the design of its quantitative-easing program to ensure it doesn't run out of assets to buy. It's scheduled to run until March 2017, but Mr Draghi has pledged to keep it going as long as needed.

Options include removing the rule limiting purchases to securities yielding more than the deposit rate of minus 0.4 per cent, and changing the issuer or issue limits. Shifting buying allocations toward countries with larger amounts of outstanding debt has already run into opposition from the two German members of the Governing Council - Executive Board member Sabine Lautenschlaeger and Bundesbank President Jens Weidmann.

"Widespread feelings of insecurity, including economic insecurity, remain a major concern," Mr Draghi said in Brussels. "We cannot simply wait for better times: we need to renew our efforts to ensure that Economic and Monetary Union offers protection and prosperity. The ECB will do its part."

BLOOMBERG