ECB: Draghi asks for faster response of Eurozone governments to reforms

Mario Draghi, President of the European Central Bank (ECB) warns on lack of actions of Eurozone leaders at the Brussels Economic Forum.

Draghi asked the governments to act in all policy areas in order for stabilisation of the economy to occur. “In the euro area, many structural reforms have been implemented in recent years, and especially in those countries worst-hit by the crisis. The benefits can now be seen. But there are many more benefits still to aim for, and so much more needs to be done,” stressed Draghi.

As consolidation after 2010 in the area was implemented in some countries mainly through tax rises rather than current spending cuts, the full burden of macroeconomic stabilisation was placed on monetary policy, as Draghi suggests. “This has led to a slower return of output to potential than if fiscal policy had been more supportive. This is why the ECB has said many times that fiscal policy should work with not against monetary policy,” underlined the man responsible for the Euro area’s monetary policy.

“Supporting demand is not just a question of the budget balance, but also of its composition, especially the tax burden and the share of public investment,” he adds. “We should not see fiscal policy as solely a macroeconomic tool, which is only available to countries with strong public finances. We should also see it as a microeconomic policy tool that can enhance growth even when public finances need to be consolidated.”

Read more: Draghi asks for faster response of Eurozone governments to reforms

Italy at a Crossroads - by Emanuele Schibotto

It is now a year and a half since Matteo Renzi took over as Italy’s Prime Minister on February 22, 2014.

Since then, Mr. Renzi, who is the second-youngest national leader in Europe, has sought to deal with the difficult task of implementing the much-needed economic reforms demanded by the European Union and the International Monetary Fund.

Renzi is keen to restore market confidence and revamp the Italian economy (real GDP will post a poor 0.7% of growth in 2015 and 1.2 in 2016, according to the IMF).

Actions have been taken to boost job creation and growth, improving domestic competition and easing the burden of bureaucracy — which impedes an otherwise dynamic private sector.

“If fully and effectively implemented, these reforms could contribute to improving competitiveness and addressing some long-standing obstacles to growth,” wrote the European Commission in a recent report.

Despite this progress, Italy remains under close scrutiny from international markets – and for good reasons. Unemployment is over 12%, GDP growth is sluggish and perhaps most critically, the economy is still 9% below the peak it reached before the global financial crisis unfolded in 2008.

Read more: Italy at a Crossroads - The Globalist

Italy passes electoral overhaul to end chronic instability

Italy's parliament on Monday gave final approval to the new electoral law, despite furious objections from the opposition and some members of Renzi’s ruling Democratic Party.

The electoral overhaul, which becomes law after more than a year of discussion in both chambers of parliament, is a central part of the prime minister's political and economic reform agenda.

It replaces a widely decried electoral law passed more than a decade ago under former premier Silvio Berlusconi, nicknamed “Porcellum” (which means pig in Latin).

The new legislation, which only takes effect in July 2016, is based on proportional representation but guarantees a big majority to the winning party and gives party bosses wide powers to handpick preferred candidates.

If the winning party gains at least 40 percent of the vote, it qualifies for a winner's bonus that automatically gives it 340 seats in the 630-seat Chamber of Deputies.

If no party wins 40 percent, a run-off ballot between the two largest parties is held two weeks after the first election to determine which party gets the winner's bonus.

Read more: Europe - Italy passes electoral overhaul to end chronic instability - France 24

Greece must ditch false hopes, tackle reform, Germany’s Schaeuble says - by Brendan Greeley, Rainer Buergin and Birgit Jennen

German Finance Minister Wolfgang Schaeuble ruled out further concessions to Greece, saying it’s up to the Greek government to commit to the reforms needed to release aid rather than give false hopes to its people.

Schaeuble, speaking in a Bloomberg Television interview in New York on Wednesday, said that another debt restructuring wasn’t up for discussion now, and that Greek demands for war reparations from Germany were “completely unrealistic.”

Read more: Greece must ditch false hopes, tackle reform, Germany’s Schaeuble says - The Globe and Mail

Europe's Fresh New Politicians: Economic reform in Europe: The rise of the Vallenzi

Matteo Renzi  (Italy) and Manuel Valls (France)

In the the smouldering economic landscape of the euro zone, the future is riding on two men. In France Manuel Valls ,  is leading the most reformist government in years.

In Italy, whose economy is in even worse shape than France’s, Matteo Renzi  is also talking of change. Both have been in office for barely half a year and have a promising Blairite agenda. But the Vallenzi are also open to the same criticism: that as far as reform goes, they are all mouth and no trousers.

France and Italy pose a grave threat to the single currency. They are the euro zone’s second- and third-largest members. Growth in France is flat and unemployment stuck at over 10%. The budget has not been balanced for 40 years, and public spending takes 57% of GDP—far the highest in the euro zone. Italy is no better. It is in recession, and its debt is over 130% of GDP.

They are also laggards in reform. Whereas Spain has started to get to grips with its structural problems, France’s Socialist president, François Hollande, has not even tried. Instead of reducing taxation, he has raised it. Instead of encouraging business, he has added to its burdens. Instead of promoting reforms, he has avoided them. In Italy, a series of well-meaning prime ministers have been unable to overcome the formidable vested interests that see reforms as a threat to the special deals they have carved out.

This combination of size and lassitude is dangerous, because France and Italy are at once too big to fail and too big to bail out. But the two countries’ governments now offer reason for hope. Mr Renzi has overseen constitutional change that should make it easier to force through reforms, and promised a “revolution” to speed up justice and promote investment.

Mr Valls has reshuffled his government to dump its most leftist anti-reformers. He sounds pro-business and promises to cut spending, reform welfare and the labour market and open up protected professions. The 35-hour working week is being made more flexible, and the top tax rate of 75% will lapse next year.

Until now Mr Hollande’s unpopularity has been a weakness, but as the least-popular president in the history of the Fifth Republic, backing Mr Valls may be his only chance. After two years of failure, French voters seem to understand that there is no alternative to reforms: they are now even in favour of working on Sundays. Mr Valls may also get most Socialist deputies to accept change by threatening fresh elections if they do not.

Read more: Economic reform in Europe: The rise of the Vallenzi | The Economist