Euro central banker defends austerity steps

The head of the European Central Bank said in Davos on Friday that the embattled euro had been relaunched but that more had to be done to boost the eurozone's recession-wracked economy.

Euro central banker defends austerity steps
European Central Bank Chairman Mario Draghi addressing the Davos forum. Photo: Johannes Eisele/AFP

Speaking to the world's top business and political leaders at the World Economic Forum, Mario Draghi also said that austerity measures being taken in crisis-hit countries were "unavoidable" despite the impact on growth.

"If one has to find a common denominator . . . for defining why 2012 is going to be remembered, I think one would say it's the year of the relaunching of the euro," Draghi said in his well-attended and hotly anticipated speech.

Draghi outlined three "extraordinary" steps taken by European leaders and institutions to battle the three-year sovereign debt crisis that has pitched the 17-nation bloc into recession.

Governments have pushed through structural reforms with "urgency" and these are "now bearing fruit," said the ECB boss.

European leaders had recognised structural flaws inherent in the single currency and were now pushing for greater integration.

And finally, his own institution had undertaken actions that broke the monetary policy mould, including providing one trillion euros ($1.33 trillion) in liquidity for banks.

The ECB also announced a programme to buy the bonds of debt-wracked countries which had proved "very helpful" in reducing the perception that the euro was on the point of collapse, Draghi said.

However, he said it was too early to declare the battle over.

"Are we satisfied for that?

"I think to say the least, the jury is still out.

"Because all in all, we haven't seen an equal momentum on the real side of the economy and that's where we will have to do much more."

Nevertheless, Draghi hailed what he called a period of "relative tranquility" on the financial markets.

"All the indices point to a substantial improvement of financial conditions," he said.

"It is a situation where you have what I called once positive contagion on the financial markets . . . but we don't see this being transmitted into the real economy yet."

He forecast that the euro area economy would "stabilize" at a "very low level of activity" this year, and predicted "a recovery in the second part of the year."

The European Central Bank has forecast the eurozone economy will contract by 0.3 percent this year but rebound to register GDP growth of 1.2 percent in 2014.

Draghi urged governments not to let up on the momentum of reforms just because the pressure from the markets had been reduced.

"We can have a positive development if national governments would persevere in their actions, both in fiscal consolidation but especially now in the field of structural reforms," he said.

Fiscal consolidation — or reducing debt and deficit mountains — was "unavoidable" he stressed, but he acknowledged that raising taxes and cutting
spending tended to result in slower economic growth.

Draghi concluded with a plea to the global elite not to underestimate the euro area economy, despite its woes.

Notwithstanding the strife in weaker euro countries like Spain and Greece, the average levels of indicators such as productivity or inflation put the euro area in line with some of the best economies in the world, he said.
 "We tend to forget the strength of the euro area economy."

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Switzerland: 2021 Davos summit shifted to Lucerne in May

The World Economic Forum announced Wednesday that its postponed 2021 Davos summit, themed as "The Great Reset" in the coronavirus crisis, will take place in Lucerne, Switzerland from May 18 to 21.

Switzerland: 2021 Davos summit shifted to Lucerne in May
Participants at the World Economic Forum at Davos in 2020. Photo: FABRICE COFFRINI / AFP

The annual gathering of the world's political, economic and business elite traditionally takes place in January against the idyllic snowy backdrop of the Swiss Alpine village of Davos.

But it was postponed due to the Covid-19 pandemic and, charged with remodelling the world economy in the wake of the crisis, will now be held 125 kilometres (75 miles) away in the plush Burgenstock resort overlooking Lake Lucerne.

“The meeting will take place as long as all conditions are in place to guarantee the health and safety of participants and the host community,” WEF spokesman Adrian Monck said in a statement.

“The meeting will focus on the solutions required to address the world's most pressing challenges. “Global leaders will come together to design a common recovery path, to shape 'The Great Reset' in the post-Covid-19 era and rebuild a more cohesive and sustainable society.”

Hybrid format

The WEF announced in June that the 51st edition of its annual meeting would take place in a hybrid format, then in August said it was being delayed for several months to reduce any risks to participants from the coronavirus pandemic.

The Lucerne summit will combine both in-person and virtual elements, with participants linked to a network of around 400 hubs worldwide to incorporate dialogue with the WEF's “young global shapers, to ensure openness and inclusion”, said Monck.

The summit will be preceded during the week of January 25 by digitally-convened high-level “Davos Dialogues”, when global leaders will share their views on the state of the world in 2021.

The novel coronavirus has killed more than 1.04 million people while at least 35.5 million infections have been recorded since the outbreak emerged in China late last year, according to a tally from official sources compiled by AFP.

The pandemic has also triggered a global economic downturn, though the International Monetary Fund said Tuesday that while it is far from over, it will not be as bad as originally feared thanks to a flood of government spending.

The World Trade Organization said likewise, forecasting a global trade contraction of 9.2 percent this year, rather than its previous “optimistic scenario” prediction of 12.9 percent.

But global trade will then grow by only 7.2 percent next year, rather than the previous 21.3-percent estimate issued in April, the WTO added.

Swiss cases rising

The WEF announcement comes as Switzerland announced Wednesday that daily coronavirus cases had jumped over the 1,000-mark for the first time since April 1, when the peak of the pandemic's initial wave began to recede.

Swiss Health Minister Alain Berset has urged the country to “get a grip” and be more rigorous in applying the basic measures to control the spread of the virus.

The 2020 edition of the WEF summit, hosted in January just as the world was beginning to become aware of the new coronavirus spreading in China, drew more than 50 heads of state and government to Davos.

It focused on themes of sustainability and finding a more inclusive model for capitalism. US President Donald Trump and Swedish teenage eco-warrior Greta Thunberg were among its top speakers.

The WEF said it aims to be back in Davos for 2022.