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ECB president: Tough reforms and austerity must continue despite heavy social costs

By: David McHugh, The Associated Press

Wednesday, Feb. 27, 2013 at 1:30 PM | Comments: 0

FRANKFURT - European Central Bank President Mario Draghi acknowledged that austerity measures and economic reforms can have heavy social costs — but argued that they are needed in the longer-term to reduce injustices such as widespread youth unemployment.

Draghi's remarks Wednesday come two days after an election in his native Italy in which a majority of voters supported parties campaigning against the austerity and reforms. The spending cuts and tax increases were carried out by Prime Minister Mario Monti over the past 15 months to lower the government's massive debt burden and restore confidence in the 17-country euro, but they are blamed for worsening the recession and unemployment.

Draghi did not mention Italy in the text of his speech at the Catholic Academy in Munich, where he focused on ethical issues connected with economics. He paid tribute to efforts by the city's former archbishop, Pope Benedict XVI, to emphasize social justice in the global economy, and mentioned his own education at a Jesuit-run Catholic school.

But he addressed indirectly Europeans' growing indignation over austerity measures.

"The benefits of the painful actions undertaken so far have not yet materialized," he said. "And this means that economic adjustment is coming at a heavy social cost... We are fully aware of the human dimension that lies behind it."

Calling unemployment "a tragedy," he urged governments to press ahead with fixing structural problems in their economies so that they can grow more strongly. He singled out the high rate of youth unemployment, which is over 50 per cent in Greece and Spain. "Is that fair, that as a result, this generation has to bear the bulk of the burden in the downturn?" he asked.

"That's why I say that reforms that make economies work better also make them fairer."

Monti reduced the deficit but saw some key reforms to increase growth and reduce unemployment blunted by political opposition. Unions fought his efforts to lessen job protections for older workers that help keep younger people from breaking into the job market.

Draghi said countries reformed to help themselves, not to satisfy the ECB or European Commission.

"For this reason, it is wrong to claim that countries are undertaking reforms only to please the markets or to satisfy the demands of technocrats in Brussels, Frankfurt or Washington. They are doing it for their own benefit. And it is time that this message gets more emphasis."

The Commission, which is the European Union's executive commission, and Germany, the eurozone's biggest member, have pushed for balanced budgets as a major part of the solution to Europe's crisis over too much government debt. They've done so over the objections of some economists and leaders who argue that cutting spending reduces growth and ultimately makes debt harder to pay. Eurozone leaders' strategy also includes reforms to make troubled countries better places to do business and efforts to steady a troubled banking system.

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