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ECB president calls for policy reform to boost employment rates

By Andrew Pring | 26 August 2014

European Central Bank president Mario Draghi has called on governments across Europe to cut taxes in order to bring down unemployment rates across the continent.

The call for more ‘growth friendly’ measures was one of a package urged by Draghi in a speech to central bankers in America on Friday. Other proposals included better co-ordination of taxation rates and spending between European governments to ensure complementary action.

The ECB president also called for more action by governments to tackle long-term structural unemployment problems.

‘Structural policies are needed to engineer higher potential growth and allow both fiscal and monetary policy regain traction over the economic cycle,’ he said.

‘Structural unemployment was already very high in the euro area before the crisis and the national structural reforms to tackle this problem can no longer be delayed.’

Two types of labour market measures are a priority, he added. ‘First, measures that help workers redeploy quickly to new job opportunities and thus lower unemployment duration; and second, those that raise the skill intensity of the work force, which is also very important for potential growth due to demographic prospects.’

Draghi warned that the risks of doing too little – leading to cyclical unemployment becoming structural – outweighed those of doing too much – that is fear that action to boost employment could lead to excessive upward wage and price pressures.

A package of measures announced by the ECB in June, which included interest rate cuts and business-stimulating lending steps, should help boost demand and job creation, he suggested.

Further coordinated action to boost employment action would ‘allow each member of our union to achieve a sustainably high level of employment’, he added.

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