MercoPress. South Atlantic News Agency

ECB calls on governments to promote growth and combat the tragedy of unemployment

Mario Draghi suggests shaking up hiring rules and simplifying regulations affecting products companies make

European Central Bank President Mario Draghi urged indebted governments to move beyond spending cuts and tax hikes and introduce reforms that would boost growth and reduce the “tragedy” of unemployment.

Speaking after the bank’s monthly policy-setting meeting, Draghi praised the progress made by the 17 European Union countries that use the Euro in controlling their deficits in an effort to dig out of the region’s 3 ½-year economic and financial crisis.

Euro governments cut the average budget shortfall to 3.5% of economic output last year from 4.2% the year before.

But government cutbacks have plunged the Euro zone economy into recession and sent its jobless rate to 11.9%, highest since the Euro was launched in 1999. The ECB lowered its economic forecast for this year Thursday, saying the region’s economy would shrink 0.5% instead of by the 0.3% projected in December.

Draghi went out of his way to urge steps for growth, such as shaking up hiring rules and simplifying regulations affecting the products companies make.

The ECB president said that austerity must be followed up with a “comprehensive structural reform agenda” to encourage growth and job creation in countries that have left large numbers of 20-somethings on the margins of their stagnant economies. In Greece, the unemployment rate for the under-25s is 59% while in Spain it is 55%.

He said it was “of particular importance” to tackle youth joblessness. Unemployment is “a tragedy, and youth unemployment is an even bigger tragedy,” Draghi added.

Draghi’s comments come as Europe’s leaders appear to be reconsidering harsh austerity as a way of combating the crisis. While governments are still under pressure to cut deficits, Euro zone finance ministers meeting earlier this week indicated they were now willing to give countries more time to meet European Union requirements that they close their deficits, lessening the impact of cuts on growth.

Also Thursday the ECB decided to leave its key rate unchanged at a record low of 0.75%. The economy is weak enough for another rate cut, economists say, and inflation is low at 1.8%, meaning there’s little risk a cut would worsen inflation.

The ECB maintains that its monetary stance is “accommodative,” meaning interest rates are low enough to spur growth. Since Draghi took over as ECB president in November 2011, the bank has cut rates, flooded the banking system with cheap credit, and shored up government bond prices by offering to purchase unlimited quantities of bonds for countries that agree to reduce their deficits.

Nonetheless, the ECB has not gone as far as the Bank of England, Bank of Japan and the U.S. Federal Reserve, all of which have pumped newly created money into their financial systems to try to boost asset prices and spur growth.