Exclusive: Draghi lectures euro zone leaders about labor costs

BRUSSELS Fri Mar 15, 2013 8:43am EDT

Mario Draghi, President of the European Central Bank (ECB), listens to reporter's questions during his monthly news conference in Frankfurt, March 7, 2013. REUTERS/Kai Pfaffenbach

Mario Draghi, President of the European Central Bank (ECB), listens to reporter's questions during his monthly news conference in Frankfurt, March 7, 2013.

Credit: Reuters/Kai Pfaffenbach

BRUSSELS (Reuters) - European Central Bank President Mario Draghi gave EU leaders a crash course in macroeconomics late on Thursday, emphasizing his concerns about low productivity and high labor costs hurting the euro zone's prospects, officials said.

In a two-hour session with the euro zone's 17 heads of state and government, Draghi, a former professor of economics and political science, took his audience through a range of slides and charts depicting the region's divergences.

The presentation and discussion, which diplomats said was well received by the leaders despite starting at 11 p.m., focused on the growing gap in several member states between how much labor costs and how productive workers are.

"It was a very comprehensive presentation that underlined the growing gap, particularly in countries like Italy and France," said one euro zone diplomat briefed on the meeting.

"Draghi effectively said, 'there are two ways to close this gap, either reduce labor costs or raise productivity', and he said that the bigger the gap in a particular country, the less room there was to act to close it."

Another EU official briefed on the presentation described it as "sobering" for some of those present, but he said there was no arguing over the facts. Instead, a discussion ensued that several leaders said they found useful.

"It was a very calm and open meeting," the official said.

"At one point one of the prime ministers mentioned his concerns about rising unit labor costs at home and asked the Portuguese prime minister to talk about his experiences with tackling the problem."

After the meeting, Merkel said she had found it helpful.

"We had very interesting reports from Mario Draghi. They mainly concentrated on the question: How can we improve our competitiveness," she said.

"In some countries the course for productivity and wages is responsible for the high unemployment today."

Draghi, a former head of the Italian central bank and a former professor at the University of Florence, gave a shortened version of his presentation to all 27 EU leaders earlier on Thursday, and the president of the European Commission, Jose Manuel Barroso, also talked to leaders about low productivity.

In his address, Barroso emphasized how cutting labor costs and raising productivity can help stimulate exports, and showed how countries such as Ireland, Portugal and Spain had turned current account deficits into surpluses in the past year.

Another official briefed on Draghi's presentation, which took place on the 8th floor of the summit building, with the leaders each given a packet of A4 graphs and charts to consult, described it as aiming to hitting three points.

"His main message was about the importance of, as he called it, competitiveness, confidence and credit, or the ‘three cs'," the banking official said.

Draghi also talked about the problem of monetary policy transmission - getting lending going again in the real economies of all corners of the euro zone - and in particular how changes to bank rules had created an uneven playing field between Europe and the United States.

(Additional reporting by Andreas Rinke and John O'Donnell; writing by Luke Baker, editing by Mike Peacock)

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Comments (2)
satori23 wrote:
That’s the essence of European social engineering effort… when they say compete, they say work longer for less money. As they pit nations against nations in profoundly dimwitted race to the bottom, they’re turning developed countries into developing, and developing into third world nations.

Detached admins, acting as if people are cattle, willing to toil till they die for corporate or private interest while fed with crumbs.

Mentality of enslavers, for sure.

Well, there’s a third way… a grand way to the future. Self-immolation’s aside, it’s somewhat amusing, to watch these folks, mesmerized by the headlights, standing in the middle of that road.

Suicidal bunch…

Mar 16, 2013 1:53am EDT  --  Report as abuse
Laster wrote:
Here’s a guy who doesn’t even physically print the central bank money he’s causing to be printed. How much faith can you have in a professor, economist, and ex-GS allum that won’t even look at collapsing failing financial institutions, much in the way Jesse Jones resolved the 30′s financial insolvency.

During the entire slide show presentation calling for lower wages and more productivity, you can bet there wasn’t ONE $%#&$#%@ SLIDE showing the continued wealth transfer and imbalance propping up useless financial intermediaries.
There’ll be no aggressive investigation and prosecution of those who acted irresponsibly with financial accounting balance sheets.
This guy will continue his same listless, unimaginative operation of the ECB, and everyone not in the “Big Club” will have to support this.

Mar 17, 2013 3:40pm EDT  --  Report as abuse
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