More structural reforms, cuts in social contributions and direct taxes, greater fiscal coordination within the EU and a large public investment program.
Mario Draghi , President of the ECB, presented yesterday these four recipes to combat “tragedy” of unemployment in Europe, particularly in Spain , star of speech to central bankers in Jackson Hole. Although labor reform is having “positive effects,” Draghi criticized the slow response of the governments of Zapatero and Rajoy to combat unemployment in our country.
Mario Draghi issued a warning about what can and can not make the ECB to combat the problem of unemployment. Except for some “adjustments” that can undertake in its monetary policy, is the primary responsibility of governments national and European politics.
In a nod to France and Italy, the banker asked Brussels to be flexible in applying the EU fiscal rules “to achieve margin with which afford the necessary structural reforms.”
Tax Rebate
also reiterated the need to reorient fiscal policies in some EU Member States, including Spain. The message is not new, because the European Commission has been insisting on this for a while, but Draghi is new to include this as a priority to reduce unemployment. “ will be possible low taxation without having budget effects,” he admitted. The formula for doing this is reducing social security contributions and direct taxes in exchange for an increase in VAT and other special tributes.
It says that the primary responsibility to arrest is of national governments and European policy
The responsibility to combat unemployment is not exclusive to national governments. The head of the monetary institution also seeks “ budgetary coordination stronger” between Member States, as well as a complementary action at European level through “a program of public investment on a large scale.”
This proposal “is in line with the interests of the next president of the European Commission”, Jean-Claude Juncker , as recalled Draghi. Both this message as the greater fiscal coordination indicates where you can go run the economic debate in Europe in the first half of the Juncker Commission.
In a particularly descriptive speech, Draghi turned to Spain to exemplify the cyclical and structural imbalances that have led Europe to spearhead unemployment rates. From a cyclical standpoint, financial, first crisis and sovereign then caused the largest increase in unemployment in the Eurozone. Resolved greatly both threats, high unemployment has persisted in countries such as Spain, have more rigidities and structural problems.
The Spanish Case
That’s where the Italian banker paused to describe the problems of Spain, who “entered the crisis with large rigidities and did not start reform the labor market until 2012. ” I also was hard on his analysis of wage restraint: “Spain was the country where the wage indexation to CPI was more common.” “As a result, wages continued to increase until the third quarter of 2011, although by then unemployment had risen by more than 12 percentage points.”
consider that labor reform Rajoy Government has been effective in Spain
Despite the slow reaction of governments to Zapatero and Rajoy Draghi itself gives effect to the labor reform approved: “Some of these rigidities have been resolved since 2012.”
The ECB chief stole most of the spotlight from its counterpart in the Federal Reserve (Fed), Yanet Yellen , who cautiously warned that could raise interest rates sooner rather than later. After pointing out that the economy is achieving the objectives – inflation of 2% and an unemployment rate of 6.5% -, Yellen said that “if the labor market continues to move faster or inflation rises faster than expected, rising interest rates may come sooner than expected. “
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