Speech

Managing Director’s Welcoming Remarks at the Camdessus Lecture with Mario Draghi

May 14, 2015

Webcast of the 2015 Michel Camdessus Central Banking Lecture

Ambassador, excellencies, honored guests:

Welcome to you all on the occasion of the second Michel Camdessus Lecture on central banking!

It is a great pleasure to be hosting this event, which I am proud to say is named after our former IMF Managing Director Michel Camdessus.

It is also my personal privilege to welcome and introduce the President of the European Central Bank, Mario Draghi, as our speaker today.

* * * *

This lecture series responds to our collective need to reflect on the challenges central banks face in the aftermath of the global financial crisis.

It also highlights the Fund’s commitment to collaborate with central banks in our member countries. Central banks have played a critical role in fighting the recent crisis, and our commitment to work with them is stronger than ever.

Despite the massive and unconventional demand support deployed in several places over the past few years, notably by central banks, the crisis has had a long-lasting effect on growth and job creation.

I am myself very concerned that slow job growth and rising inequality will come back to haunt us. We need ambitious and decisive policies to boost today’s growth and tomorrow’s growth potential, and to build resilience to existing and emerging challenges. I am reminded of a saying by Michelangelo:

“The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark.”

Michelangelo reminds us of the importance of aiming high, of aiming for strong, sustainable, balanced, and inclusive growth.

Before introducing President Draghi, I would like to touch briefly on:

• the global recovery and monetary policy, and
  
• sketch succinctly what can be done to support strong, sustainable, balanced, and inclusive growth.

Growth has been diverging and monetary policy settings across major economies have become asynchronous, with further easing in the euro area and Japan, while the United States and the United Kingdom remain on the path toward normalization. The dollar has appreciated, while the euro and yen have weakened. At the same time, market volatility has increased from historical lows, with rising risk spreads and currency depreciation in some emerging markets.

Financial stability risks are rotating, from advanced economies to emerging markets, from banks to the non-bank financial sector, and from solvency to market liquidity risks. Policy will need to adapt to this changing environment.

In a less-than-stable geopolitical context, developments and prospects are thus mixed at best, and growth has disappointed many times since the global financial crisis. A “new mediocre” remains a distinct possibility—in other words, low growth for a long time.

This brings me to my second point – the policies to prevent economies from settling into a “new mediocre.”

Monetary policy has had, and will continue to have, an important role to play, and here I would like to offer my support for what Mario and his colleagues at the ECB have been doing. Notably, the significant further easing of monetary policy in January of this year has done much to stave off the threat of deflation and support weak demand. Monetary policy and price stability are essential for strong, sustainable, and inclusive growth.

But monetary policy is not enough, and needs to be complemented by other measures:

• Structural reforms are crucial to unleashing an economy’s productive potential. Regulations in labor and services markets, for example, can be streamlined in many cases.
  
• Fiscal consolidation should be designed to protect the capacity of the poor and vulnerable to fully contribute to the economy and society. In advanced economies, more efficient fiscal policy could also increase the long run growth rate by one third of a percentage point per annum—a substantial pickup when sustained over many years.
  
• We also need to keep increasing opportunities for women. By some estimates, if the female labor force participation rate were equal to that of men, GDP would increase by 5 percent in the U.S. and 9 percent in Japan.
  
• More generally, growth needs to become more inclusive to be strong and sustainable. To this end, the IMF has launched a new initiative to cover jobs, inequality, gender, and energy issues in our surveillance of member countries’ policies, and we remain actively engaged in the sustainable development agenda unfolding throughout the year.

* * * * *

In reflecting upon the challenges in the aftermath of the global financial crisis, it comes to mind that difficult times call for great leadership. And, to my mind, there are few other figures who have demonstrated greater leadership than Mario Draghi.

Mario—and I cannot emphasize this enough—your job is one of the most difficult. It is in part because it is a very influential one, and you have used that influence to move the euro area in the right direction.

Those who know you understand that you are a man of outstanding insight, fierce determination, and above all, courage. You can call a spade a spade without putting any of your cards on the table.

Mario, you have had a long and distinguished career in academia before heading major public and private sector institutions—as Director of the Italian Treasury, as Vice Chairman and Managing Director at Goldman Sachs, as Governor of the Bank of Italy, as Chairman of the Financial Stability Board, and then, since 2011, as President of the European Central Bank.

I am deeply honored, Mario, that you have accepted our invitation to deliver the second Michel Camdessus Lecture.

All of us here look forward to hearing your thoughts on monetary policy and central banking.

I also look forward to engaging with you in a conversation about the major challenges facing today’s central banks, after your remarks. The floor is yours!