{"id":59216,"date":"2014-08-25T01:28:07","date_gmt":"2014-08-25T05:28:07","guid":{"rendered":"http:\/\/countingpips.com\/?p=59216"},"modified":"2014-08-25T01:28:07","modified_gmt":"2014-08-25T05:28:07","slug":"monetary-policy-week-in-review-aug-18-22-2014-ecbs-draghi-calls-on-euro-area-to-prime-fiscal-pumps","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/08\/monetary-policy-week-in-review-aug-18-22-2014-ecbs-draghi-calls-on-euro-area-to-prime-fiscal-pumps\/","title":{"rendered":"Monetary Policy Week in Review \u2013 Aug 18-22, 2014: ECB’s Draghi calls on euro area to prime fiscal pumps"},"content":{"rendered":"
August 25, 2014<\/div>
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By CentralBankNews.info<\/u><\/a>
\n    The split in global monetary policy between the world\u2019s major central banks was thrown into sharp relief last week as it once again became clear that U.S. and U.K. monetary policy will soon be tightened while the European Central Bank (ECB) launched an impassioned plea for euro area governments to step up to the plate and use fiscal policy to boost faltering demand.
    With growth improving and unemployment falling, last week’s minutes from both the U.S. Federal Reserve and the Bank of England (BOE), along with the message from Fed Chair Janet Yellen at Jackson Hole, showed that the two banks are inching closer to the point of raising rates for the first time since July 2006 and July 2007, respectively.
   While most of the media attention was focused on Yellen\u2019s inaugural speech at the two-day Jackson Hole Economic Symposium \u2013 which essentially mirrored the Fed’s July minutes released last Wednesday \u2013 it was Mario Draghi, ECB president, who really broke new ground.
    Draghi, who in the past has applauded euro zone governments for reducing budget deficits, appeared to have had a change of heart and laid out a case for fiscal policy to help stimulate demand now that the ECB has cut rates to close to zero and launched an aggressive package of stimulative measures.
    Although the measures have yet to take effect, Draghi also stressed that the ECB remains ready to adjust its policy stance further, a sign that additional measures are being prepared.
    Since the sovereign debt crises in 2010, which threatened and shook the euro zone to its core, fiscal policy has been \u201cless available and effective, especially compared with other large advanced economies,\u201d Draghi said, adding euro area debt in aggregate is not higher than the U.S. and Japan.
    \u201cThus, it would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this,\u201d Draghi told fellow central bankers during his luncheon address on Friday in Jackson Hole.
   While acknowledging the limits on deficits that are embedded in the euro area\u2019s Stability and Growth Pact, Draghi said flexibility within those rules could be used to make room for the cost of urgently needed structural reforms to help boost competitiveness.
    In addition, Draghi said government taxes and expenses should be cut, a move that would help business confidence and private investment in the short term.
    Another initiative is for euro area governments to coordinate their fiscal stance \u2013 a sensitive topic especially for German politicians \u2013 to \u201callow us to achieve a more growth-friendly overall fiscal stance for the euro area.\u201d
    Finally, Draghi called on a large public investment program on a EU-wide level, backing proposals by the incoming president of the European Commission, the European Union executive.<\/p>\n

LIST OF LAST WEEK\u2019S CENTRAL BANK DECISIONS<\/span><\/b>:<\/b><\/span><\/div>\n
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