Investment and structural reform are what's needed to bring growth back to the euro zone - because the ECB can't do it all on its own, says Mario Draghi as he turns his rhetoric on Europe's governments. Joanna Partridge reports.
Once again - the pressure's on. Euro zone finance ministers meeting in Italy - searching for ways to stimulate growth. Now they need a new strategy. Since the crisis, they've focussed on budget cuts, as promoted by Germany - aimed at bringing down public finances and winning back investors. But after France finally admitted it needs another two years to put its finances in order, investment is the new buzzword. That tallies with the European Central Bank's dramatic policy shift. President Mario Draghi told a financial forum in Milan the ECB cannot support the bloc on its own. "…only if structural, fiscal and monetary policies go hand in hand will the euro area see investment return." The central bank has called for more government action to revive growth, including structural reforms and smarter spending. Draghi stating: "A decisive rise in investment is essential to bring inflation closer to where we would want to see it, to stimulate the economy, and to bring down unemployment" That's emboldened France and Italy to call for a more flexible interpretation of EU budget rules. But German Chancellor Angela Merkel has rejected bending the rules. Will Hobbs from Barclays believes labour market reform is key. SOUNDBITE: Will Hobbs, Barclays, saying (English): "Particularly in France and Italy. And actually in Italy the prospects look a little bit brighter for those reforms than they do in France at the moment. What we need is labour market fluidity, the ability for the private sector to pick up slack or reallocate resources quickly to where an economy needs it. And the problem is constrictive labour laws in both countries in particular just mean that fluidity is largely absent and that means that your economy in general lacks a dynamism that enables it to recover from the crises." Challenges clearly remain - but it's not all bad news for the euro zone. The bloc's regional output jumped twice as much as expected in July, ending two months of contraction. That's raising hopes the third quarter may herald a return to growth.