Cut costs and tax less, says European Central Bank president

Mario Draghi

Mario Draghi, the Italian who presides over the European Central Bank, affirmed on July 9 at a press conference that member governments would be better off “cutting costs rather than raising taxes” in order to heal the current economic recession. Appearing at the European Parliament, Draghi criticized actions taken by some European leaders who, “in a hurry”, focused on tax hikes. Draghi said that raising taxes “is the very last thing that should be done” in the current situation.

While he did not cite specific examples, Draghi said that it is because of this that “the advantages of a deficit reduction have not been seen.” Even so, Draghi expressed confidence that over time there will indeed be benefits derived from the bank’s strategy, while insisting that member governments should prioritize cuts in spending and taxation.

Spain, which has been hit hard by a real estate and contruction slump, debt, unemployment and political agitation, appears to be taken an opposite tack. Spanish Treasury Minister Cristóbal Montoro, for example, has announced a coming hike in the nation’s value added tax (VAT).  Montoro said that Spain is facing a reduction the receipt of income taxes, but expects an increase from indirect taxation.  Even so, European Central Bank president Draghi said that Spain shows that it is utterly committed to accelerate a program of “structural reforms” while also addressing the financial sector.

Spain, said Draghi in an appearance before the European Parliament’s committee on economics, is committed to improving its competitiveness in external markets and setting down the basis for sustainable growth.  According to Draghi, it is “crucial” for European governments to continue with their reforms.

Draghi said that this autumn may see a proposal for setting up a European banking authority that would directly finance Spanish banks that there now shaky. All of the organizations involved, said Draghi, are “working very hard” on the project.  However, Germany and the Eurogroup appear to be more cautious and insists that such a banking authority will not come into play until the second half of 2013. A delay in financing Spanish banks could have tremendous repercussions for Spanish banks, say some analysts.
 



Spero News editor Martin Barillas is a former US diplomat, who also worked as a democracy advocate and election observer in Latin America. He is also a freelance translator.

Filed under politics, tax, economics, eu, spain, finance, banking, politics, Global

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