ECB press conference, Jan. 10th, 2013:
Question: The fragmentation in the labour markets seems to be getting even more pronounced, especially in youth unemployment, which is almost 60% in Spain and 8% in Germany. Overall unemployment is over 25% in Spain and a little over 5% in Germany. At what point does this become an issue for monetary policy?
Draghi: Our mandate is not full employment. Our mandate, and our statutory objective, is to maintain price stability.
Question: Jean-Claude Juncker has said that too much fiscal consolidation could have a negative effect on countries like Spain, because unemployment is so high. What can you say about that?
Draghi: This fiscal consolidation is unavoidable, and we are aware that it has short-term contractionary effects. But now that so much has been done, I do not think it is right to go back.
There was a self-congratulatory air at the ECB press conference last week. Draghi took credit for declining bond yields and for “positive contagion” in the financial markets. He acknowledged that unemployment was high, but said that it was inevitable, and would only subside when structural reforms are completed and budgets are balanced. He reminded his audience that “our mandate is not full employment”.
The poor man must be suffering a considerable amount of cognitive dissonance, since the dials on the ECB’s dashboard tell a different story than the happy talk that he is providing:
Economic growth: continuing decline