Draghi: The EU needs a “Reform Compact”

Kind of a “reform compact.” After supporting the Fiscal Compact, Mario Draghi called for EU Member States to be committed in a programme of reforms, coordinated and substantial, to go along with austerity measures, because “respecting the rules matters.” A political effort, a step forward which has been asked for a long time by the President of the European Central Bank. During the Memorial Lecture in honour of Tommaso Padoan-Schioppa held in Lindon this week, Draghi “formalised” his call.

Reforms, which Draghi has always judges as important as austerity measures, should be planned for relaunching growth into the Euro area. President Draghi made a significan leap forward this time, saying he thinks “there is a case for some form of common governance over structural reforms,” in the interest of the Union as a whole. For single Member States in fact it is difficult to keep their reforming pace on their own, as per Italy for instance, hence Draghi said it would be important to cooperate at European level.

“Historical experience, for example of the IMF, makes a convincing case that the discipline imposed by supranational bodies can make it easier to frame the debate on reforms at the national level,” he said.

Obviously, strengthening EU rules on coordination of balances for the Fiscal Compact was significant and remarkable. Still, it is now time to implement those rules, slowing the consolidation path would be a mistake: the higher the level of debt, the greater the probability of falling into a bad equilibrium, “where high rates lead to default.”