BARCELONA — Ahead of crucial elections in France and Greece, Mario Draghi, the president of the European Central Bank, warned governments on Thursday that opting for the “easier road” of raising taxes to fill public coffers would not solve Europe’s problems.
Mr. Draghi said it was understandable that governments would be tempted to raise taxes “under extreme urgency,” but he emphasized that “past the urgency, this should be corrected,” especially in a European environment with “a high level of taxation.”
Mr. Draghi would not discuss the politics of any specific European country.
But his comments came before Sunday’s second round of the French presidential election, which could bring to power François Hollande, the Socialist candidate, who has promised to raise taxes on the rich. Mr. Hollande finished slightly ahead of President Nicolas Sarkozy in the first round of voting last month and has remained ahead in opinion polls since then.
Mr. Draghi’s comments came after a meeting of the E.C.B.’s governing council on Thursday during which the central bank left its benchmark interest rate unchanged, at 1 percent, choosing not to react immediately to signs that the euro zone economy was continuing to deteriorate.
The decision had been expected by analysts. While underlining that the outlook “continues to be subject to downside risks,” Mr. Draghi said the bank still expected the euro zone’s economy to “recover gradually in the course of the year.”
The governing council met in Spain, the new center of the European debt crisis. At more than 24 percent, Spanish unemployment is the highest in the euro zone, while mounting bad loans have put into question the solvency of the Spanish banking sector.
Opening the press conference in a convention center on the outskirts of Barcelona, Miguel Ángel Fernández Ordóñez, the governor of the Bank of Spain, said that “it is a meeting that allows the bank to get closer to its citizens.”
Still, Spain avoided giving citizens angered by Europe’s austerity cuts and high joblessness any possibility to disturb the central bankers, temporarily suspending the Schengen Agreement, which allows free cross-border travel, before the E.C.B. meeting because of concerns that violent protesters would travel to Barcelona.
Meanwhile, about 8,000 police officers were deployed around the city, with helicopters hovering above, while only a few hundreds of students gathered in central Barcelona to protest spending cuts, particularly in education.
“Is having helicopters and snipers on the roofs the way the E.C.B. wanted to show its face and meet the Spanish people?” asked Edward Hugh, an economist in Barcelona.
In terms of addressing fiscal, financial and structural imbalances, Mr. Draghi warned in his opening remarks at the meeting that “several governments need to be more ambitious.”
But he then went on to heap praise on the governments of Spain and Italy, the two largest euro zone economies now in investors’ line of fire.
“The fiscal progress, not only referring to Spain and Italy, is generally substantial and insufficiently acknowledged,” he said.
Analysts did not expect the E.C.B. to cut rates on Thursday, but some have said that a cut in coming months is more likely after a number of negative economic reports, particularly on unemployment.
Joblessness in the euro zone rose to a high of 10.9 percent in March from 10.8 percent in February, according to official figures released Wednesday.
But on Thursday, Mr. Draghi deflated expectations of an imminent cut to interest rates, saying the members of the governing council had spoken generally about monetary policy but did not discuss a cut.
His comments suggested that the E.C.B. saw a lower risk of inflation than before, making it easier for the central bank to respond to another escalation of the crisis.
Jörg Krämer, chief economist at Commerzbank, said in a note Thursday, “In the end, the E.C.B. would cut rates if the recession did not come to an end soon.”
nytimes.com
Mr. Draghi said it was understandable that governments would be tempted to raise taxes “under extreme urgency,” but he emphasized that “past the urgency, this should be corrected,” especially in a European environment with “a high level of taxation.”
Mr. Draghi would not discuss the politics of any specific European country.
But his comments came before Sunday’s second round of the French presidential election, which could bring to power François Hollande, the Socialist candidate, who has promised to raise taxes on the rich. Mr. Hollande finished slightly ahead of President Nicolas Sarkozy in the first round of voting last month and has remained ahead in opinion polls since then.
Mr. Draghi’s comments came after a meeting of the E.C.B.’s governing council on Thursday during which the central bank left its benchmark interest rate unchanged, at 1 percent, choosing not to react immediately to signs that the euro zone economy was continuing to deteriorate.
The decision had been expected by analysts. While underlining that the outlook “continues to be subject to downside risks,” Mr. Draghi said the bank still expected the euro zone’s economy to “recover gradually in the course of the year.”
The governing council met in Spain, the new center of the European debt crisis. At more than 24 percent, Spanish unemployment is the highest in the euro zone, while mounting bad loans have put into question the solvency of the Spanish banking sector.
Opening the press conference in a convention center on the outskirts of Barcelona, Miguel Ángel Fernández Ordóñez, the governor of the Bank of Spain, said that “it is a meeting that allows the bank to get closer to its citizens.”
Still, Spain avoided giving citizens angered by Europe’s austerity cuts and high joblessness any possibility to disturb the central bankers, temporarily suspending the Schengen Agreement, which allows free cross-border travel, before the E.C.B. meeting because of concerns that violent protesters would travel to Barcelona.
Meanwhile, about 8,000 police officers were deployed around the city, with helicopters hovering above, while only a few hundreds of students gathered in central Barcelona to protest spending cuts, particularly in education.
“Is having helicopters and snipers on the roofs the way the E.C.B. wanted to show its face and meet the Spanish people?” asked Edward Hugh, an economist in Barcelona.
In terms of addressing fiscal, financial and structural imbalances, Mr. Draghi warned in his opening remarks at the meeting that “several governments need to be more ambitious.”
But he then went on to heap praise on the governments of Spain and Italy, the two largest euro zone economies now in investors’ line of fire.
“The fiscal progress, not only referring to Spain and Italy, is generally substantial and insufficiently acknowledged,” he said.
Analysts did not expect the E.C.B. to cut rates on Thursday, but some have said that a cut in coming months is more likely after a number of negative economic reports, particularly on unemployment.
Joblessness in the euro zone rose to a high of 10.9 percent in March from 10.8 percent in February, according to official figures released Wednesday.
But on Thursday, Mr. Draghi deflated expectations of an imminent cut to interest rates, saying the members of the governing council had spoken generally about monetary policy but did not discuss a cut.
His comments suggested that the E.C.B. saw a lower risk of inflation than before, making it easier for the central bank to respond to another escalation of the crisis.
Jörg Krämer, chief economist at Commerzbank, said in a note Thursday, “In the end, the E.C.B. would cut rates if the recession did not come to an end soon.”
nytimes.com
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