Europe will only fully recover from the economic impact of coronavirus if governments use their vastly increased debts to invest in young people, innovation and research, Mario Draghi has said in his first speech since leaving the European Central Bank last year.
Mr Draghi, who stepped down as ECB president last November, said debt levels would be high for a long time, but they would only be sustainable if “good debt” was “used for productive purposes” instead of “bad debt” being used for unproductive purposes.
“Low interest rates are not in themselves a guarantee of sustainability; the perception of the quality of the debt incurred is just as important,” he said. “The more that perception deteriorates, the more uncertain our framework of references will become, which would jeopardise employment, investment and consumption.”
Comparing Europe’s rebuilding from the pandemic to the aftermath of the second world war, Mr Draghi said the region had to rethink many of its rules while resisting challenges from other countries to its core values of multilateralism, solidarity and the rule of law.
“We should take inspiration from those who were involved in rebuilding the world, Europe and Italy after World War II,” he said in a speech at an event in Rimini, on Italy’s eastern coast.
As ECB president, Mr Draghi repeatedly called for the EU to issue much more common debt and to establish its own budget. He said on Tuesday that the €750bn recovery fund agreed last month by EU leaders to support countries hit hardest by the pandemic “enriches the European policy arsenal”.
The debt created by the pandemic is unprecedented and will have to be repaid mainly by those who are young today
“Europe can emerge strengthened from this crisis,” he said. “The recognition of the role that a European budget can play in stabilising our economies, and the precedent of issuing common debt, are important and can form the basis of the design of a common Treasury ministry.”
Investors have been concerned about the impact of the pandemic on already elevated debt levels in southern European countries, particularly Italy, where debt is expected to rise above 160 per cent of gross domestic product this year.
Mr Draghi said European governments faced “a moral imperative” to invest in educating young people. “The debt created by the pandemic is unprecedented and will have to be repaid mainly by those who are young today,” he said.
“It is therefore our duty to equip them with the means to service that debt, and to do so while living in improved societies,” he said, adding: “For years, a form of collective selfishness has led governments to divert attention and resources towards initiatives that generated guaranteed and immediate political returns. This is no longer acceptable today.”
Younger workers have been disproportionately affected by the pandemic’s impact on labour markets because many of them have temporary or part-time roles that have been cut, while widespread hiring freezes at companies are hampering the career prospects of graduates.
Since leaving the ECB, where he was widely credited with saving the euro from the region’s sovereign debt crisis in 2012, Mr Draghi has been appointed to a Vatican think-tank advising Pope Francis on social and economic affairs.