ECB's Draghi lobs ball back to governments on reforms

(SINTRA) - The economic skies above Europe are clearing after the long years of crisis and it is imperative that governments take advantage of this to get their economies in order, European Central Bank president Mario Draghi said on Friday.

"The economic outlook for the euro area is brighter today than it has been for seven long years," Draghi told an economic forum in Sintra, Portugal.

The ECB had played its part in laying the foundations for recovery by cutting interest rates to record lows and pumping unprecedented amounts of liquidity into the economy via a series of unconventional policy measures, Draghi said.

"Monetary policy is working its way through the economy. Growth is picking up. And inflation expectations have recovered from their trough," he said.

But he went on: "This is by no means the end of our challenges, and a cyclical recovery alone does not solve all of Europe's problems."

The emerging recovery "does not eliminate the debt overhang that affects parts of" the single currency area, the central bank chief argued.

"It does not eliminate the high level of structural unemployment that haunts too many countries. And it does not eliminate the need for perfecting the institutional set-up of our monetary union," Draghi insisted.

"But what the cyclical recovery does achieve is to provide near perfect conditions for governments to engage more systematically in the structural reforms that will anchor the return to growth."

Monetary policy could steer the economy back to its potential, but it was structural reform that could raise that potential.

"And it is the combination of these demand and supply policies that will deliver lasting stability and prosperity," Draghi said.

The ECB chief was speaking at a forum organised by the ECB where leading economists, academics, financial market players and central bankers from across the globe were invited to a secluded luxury resort in Sintra, around 25 kilometres (15 miles) from Lisbon, for a three-day think-fest.

The forum -- the second of its kind held by the ECB -- is seen as Europe's answer to a gathering in Jackson Hole, Wyoming, organised every year by the US Federal Reserve.

- The earlier, the better -

Draghi insisted governments should not ease up on potentially unpopular reforms simply because the economy was improving again.

"Being in the early phases of a cyclical recovery is not a reason to postpone structural reforms. It is in fact an opportunity to accelerate them," he said.

In fact, "the earlier they take place, the better" and reforms were now "vital for the euro area."

Structural reforms "are about unleashing an untapped potential for substantially higher output, employment and welfare. And in the current environment, this would play a crucial role in ensuring that the ongoing cyclical recovery becomes a stronger, structural recovery," Draghi said.

The central bank chief praised the progress a number of countries had made so far in pushing through reforms, notably Portugal, but refused to point fingers at individual countries that could be felt to be dragging their feet on reforms.