Mario Draghi has delivered a clear statement to the Trump administration at his Jackson Hole address: row back on free trade and financial regulation at your peril.
The European Central Bank president told the audience at the Federal Reserve Bank of Kansas City’s annual meeting at the Wyoming resort that free trade was needed to boost growth and deal with the fallout of ageing societies — countering the US president’s calls for a more protectionist approach.
The eurozone’s central banker-in-chief also backed US Federal Reserve chair Janet Yellen’s earlier warning against rowing back on financial regulation and signing up to international standards. The US administration has signalled that it intends to scale back some of the financial regulation introduced following the collapse of Lehman Brothers in the autumn of 2008.
While Mr Draghi acknowledged that free trade may worsen inequality, cooperation between nations was “crucial in responding to concerns about fairness, safety and also equity.”
“To inject more dynamism into the global economy we need to raise potential output growth, and to do so with ageing societies we need to lift productivity growth. For advanced economies that are close to the technological frontier, this depends crucially on openness to trade.”
Convergence across countries in regulatory standards was, he said, “one of the most important components of a sustainable open economy.”
“We have only recently witnessed the dangers of financial openness combined with insufficient regulation. International financial flows both contributed to and propagated the global financial crisis and the ensuing collapse of trade, output and employment,” the ECB president said.
“Any reversal would call into question whether the lessons of the crisis have indeed been learnt – and thus whether financial integration can still be considered safe.”