Eurozone governments must act now on structural reforms, ECB's Draghi says

The euro area cannot afford to wait any longer on carrying out critical structural reforms, the head of the single currency area's central bank said.

"There are many understandable political reasons to delay structural reform, but there are few good economic ones. The cost of delay is simply too high," European Central Bank president Mario Draghi said on Thursday.

He delivered his remarks as part of the 5th Annual Tommaso Padoa-Schioppa Lecture, at the Brussels Economic Forum 2016.

In particular, Draghi stressed that returning inflation to target was more than doable as, ultimately, increases in the economy-wide level of prices - what people call inflation - is a monetary phenomenon; that is to say, it is wholly in the power of the central bank to set it.

However, the speed with which inflation returns back to target and whether price stability is accompanied by prosperity - which is directly relevant to the social cohesion of the euro area - is affected greatly by other policies, which are the responsibility of governments.

So, while many policies might have been put in place since the Great Financial Crisis, others had worked at cross-purposes with the above policy aims.

For starters, the balance sheets of banks in the Eurozone have yet to be fully-repaired, as illustrated by the high stock of non-performing loans still to be seen, which means the ECB's monetary policy is less successfully transmitted.

"So more work-out of these non-performing assets will have to take place, and the conditions for that will have to be put in place by the right policies and authorities."

To boot, fiscal policy, or government expenditure, was in fact contractionary in the aftermath of the loss of confidence in sovereign credit in 2010.

Making matters even worse, instead of cutting so-called 'current spending' the reduction in net spending was achieved through higher taxes.

As a result of the above, among other things, economic growth risked running for too long below its potential levels, risking additional long-term damage to the economy.

Finally, Draghi said there were a host of structural reforms which still needed to be undertaken so as to lift the economy's "potential" rate of growth - its ability to grow with creating undue inflation or other imbalances - and the underlying 'equilibrium' interest rate, which is a reflection of the 'returns' an economy is capable of generating.