mario draghi : the euro, monetary policy and reforms speech by mr mario draghi, president of the european central bank, on receiving an honorary degree in political science, luiss ( libera universita internazionale degli studi sociali ) “ guido carli ” university, rome, 6 may 2013. * * * my first grateful and fond mention goes to guido carli. my gratitude goes to the university that bears his name, to its rector, professor massimo egidi, to its senatus academicus, which has honoured me with this title, and to professor messori for his kind words, as well as to the entire academic body of this university. the origins of the crisis in the euro area until a few years ago monetary policy was considered a textbook discipline, almost a mechanical skill involving the implementation of computational applications by conscientious experts. in the period known as the great moderation, from the middle of the 1980s to the beginning of the global financial crisis, inflation had been brought under control. macroeconomic volatility was contained and this was a source of great pride for all central bankers. some foresaw a future of genteel and honourable oblivion for monetary policy. this is no longer the case. the experience of the first five years following the crisis shows that all central banks have adjusted their monetary policies along hitherto unexplored lines : some have been abandoned and no new paradigm has yet been formulated, the wish is to put an end to the emergency and return to normality where the rules are based on a wellestablished discipline of long standing, but it is not known with any certainty what reality will emerge in the long term. furthermore, although the precise shape of monetary policy has always been influenced by the respective institutional and historical context – consider the varying “ mandates ” of the central banks – the various forms that the crisis took in different parts of the world reinforced this correspondence between the specific institutional and financial contexts and the monetary policies pursued in them. in the euro area, the extraordinary success of the single currency concealed for years the risks that were building up. the governments of the member states considered themselves free from previous constraints : with the exception of germany and a few other countries, they delayed structural reforms that could have redressed the competitiveness of obsolete economic structures to meet the challenges of relentless globalisation ; they undermined the limits introduced in the stability and growth pact, jeopardising their own credibility as partners

to mitigate the inevitable recessionary effects of fiscal consolidation, the composition of such measures must favour the reduction of current public spending and of taxes, particularly in a context such as in europe where taxation is already high by international standards. there is no doubt that lasting growth is essential for reducing unemployment, particularly among young people. in some european countries youth unemployment has reached levels that damage people ’ s faith in prospects for a decent life and which risk giving rise to extreme and destructive forms of protest. output growth was essential for the success of the european social model. the extraordinary economic growth during the so - called “ golden age ” – namely the thirty years that followed the second world war – allowed a significant improvement in the material wealth of a large portion of the european population. at the same time, this wealth strengthened the growth process. at that time the foundations were laid in europe for modern welfare systems aimed at protecting individuals against the risk that unemployment, illness or old age could lead to a deterioration in their living standards. it is in part thanks to these instruments that the financial crisis and the recession have not had the same devastating social effects as the great depression. many years ago rudi dornbusch said, exaggerating rather, that europeans were so rich they could afford to pay everybody for not working. this is no longer the case, but we do not wish to lose the solidarity which inspired that model in such very different times. therefore, today we must adapt that model in line with the changes that demographic dynamics and the new environment of global competition demand. this must be done to reduce youth unemployment, increase consumption and preserve the very essence of welfare. another aspect of growth sustainability, in a european context, that i would like to draw your attention to today is that of income distribution. for almost twenty years there has been a trend towards a higher concentration of family income in europe to the detriment of the poorest households, as statistics published by eurostat show. a more equal share in the fruits of the production of national wealth helps foster a culture of saving and, therefore, of collective involvement. a sense of being an integral part of a country and of having a stake in its economic future strengthens social cohesion and encourages individual economic behaviour that leads, in the aggregate, to economic prosperity for all. there are a number of tools governments can use to achieve this aim, but first of all social cohesion must be sought by removing the barriers which limit individuals ’ opportunity to pursue their