Former ECB President Mario Draghi Talks Growth in Europe

SPEAKER_1 (0:02)

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SPEAKER_2 (0:07)

Let's go to this conversation in New York, I believe it is, with Lisa Abramowicz in conversation with a former, so much the former head of Italy's economics and the ECB as well. Here is Lisa Abramowicz.

Lisa Abramowicz (0:24)

And frankly, the person who a lot of people think salvaged the euro area when it was challenged the most during the crisis in 2011 to 2012

Here we are, where we have French bond yields at the highest level since 2002, gapping out with respect to German bond yields at the most going back to 2012, and scenes of unrest over the weekend, and questions about what the euro region has the political appetite to do. Mario, thank you so much for being with us today. I want to start with your impression of the images that we saw over the weekend, from Paris, from Milan and your own country, of unrest, of violence in response to a lack of funding, but also something else.

Mario Draghi (1:06)

Well, first of all, thank you for having me here. Thanks for this warm welcome.

It's very, I mean, it's not obvious to explain these riots in three different countries. They have three different orders, sets of motivations. There's only one thing that really unifies all these three, and that is that all three countries next year will have elections. Elections that are exceedingly important.

But that's the, I would say, the circumstance. The explanation I think is more robust to all this is that it's a case of blocked expectations. These youth, this youth doesn't, doesn't, I mean, has a feeling that nobody is listening to them. You know, most people in the world want growth and social justice, or growth with social justice. In the case of youth, social justice means intergenerational social justice.

And when you have no growth, that becomes very difficult to maintain. That generates anxiety. You have a sense that the, how do you say, the social dynamics is blocked to them. Have a sense that they can't easily find a job. They perceive a society in very fast technological transformation, and they feel unequipped to deal with that. Then there are other sort of circumstances, like of course, you have political actors, I was mentioning in the beginning, you have crowd dynamics, you have confrontation, you have violence which should be condemned under all circumstances. But all these facts are amplifiers, rather than explanations.

Lisa Abramowicz (3:20)

Given that there is a feeling of a lack of growth and a lack of dynamism, how do some of these countries remedy debt issues that are real, in France in particular? Is there a political will to actually tackle this right now in a way that can convince investors?

Mario Draghi (3:40)

Well, I will say all Europe has had and has a problem of growth, of missing growth. By the way, incidentally, Europe is doing slightly better now. Growth forecasts have been revised up or by a few notches. But the underlying situation is one of a society that is rich, certainly, old and not growing. And when you don't have growth, the ones who call the shots are the incumbents, are the old people. And, of course, that explains also why young people feel sort of disenfranchised. I think that is one explanation which to me seems the most natural to all this. Now in France, you asked me about France. France has a specific fiscal problem.

They have been having a budget deficit for many years, and the debt to GDP ratio has been going up now, I don't know, for more than 10 years, perhaps 15 years gradually.

So now it happens that with the interest rates growing fast all over the world, this budget deficit seems to be difficult to manage.

Now, let me say one thing. I'll be speaking about the ECB here, but let me make another caution. I haven't been a central banker now for almost seven years, so take whatever I say for what's worth. Actually, interpret it not as the ECB should do this, is what I would do if I were in their shoes, which is different. But certainly now, if you ask a question that most people are asking now, is ECB going to intervene to sort of narrow the spreads that you see in the markets? Well, look at these spreads. The spreads are basically a repricing of fiscal and political risk. So, to that extent, there is nothing that would elicit an ECB intervention. In other words, right now, at least for now, I do believe that the bar for ECB to intervene is pretty high. And this is so for a variety of reasons. One is that inflation is high. And by the way, it's just gone up with the last figures. So, the priority of the ECB is price stability. That's its mandate.