On May 3, the ECB held its regular monthly news conference. President Draghi generally followed the lines that I have outlined in previous months. He injected, however, a new set of thoughts or goals that, in my view, he only partially understands himself. The fact that he injected these new thoughts should be taken both as a caution and as sign of reality recognition, as well as good politics.
The new project was injected as the third of a three-part answer regarding the potential "Growth Compact" that he had, in his own words, "hinted at" in his testimony in Brussels earlier in the week. The first two elements that he discussed involved:
(1) "Structural reforms," largely of the type that he has been encouraging governments to adopt for the last several months, adding that these reforms would spur private enterprise and investment, leading to vigorous job creation. He admitted such reforms could involve some labor dislocation and required appropriate unemployment insurance systems. He discussed progress of this sort that had been made in many countries in the 1980s.
(2) Infrastructure projects and redirecting European funds toward low-income areas. He emphasized that although fiscal consolidation often requires cutting current spending, it usually should not involve cutting capital spending that is designed to stimulate growth over the long term.
The new third element is the need to design a path for the euro - a new design for what the eurozone should look like a decade hence. He likened the current situation to the 1990s, when the euro was designed and the conditions under which it would come into existence were established. The Fiscal Compact is a starting point, he said, but not the ending point. He put the formulation of a new path in the context of economic growth, without quite explaining why. But I believe he is, as usual, on the right track. Uncertainty about the future of the euro will continue until additional reforms - and probably additional cession of sovereignty - has have been accomplished. And uncertainty concerning the future of the euro will, necessarily, dampen economic activity in the eurozone.
This is an important, even if quite uncertain, addition to President Draghi's far-reaching agenda for Europe.