Draghi tells MIT that “the EU should welcome Ukraine and the Balkan countries”

He had been at the Massachusetts Institute of Technology for a PhD in the early 1970s. And international events at the time weren’t all that different from now: “There was the Yom Kippur war, oil shocks, runaway inflation, the crisis of the international monetary system and of course the Cold War. We were able to overcome those challenges , as well as now I trust that we will be able to do the same in the future,” he recalled Mario Draghiwho returned to MIT yesterday to receive the Miriam Pozen Prize.

It was his first trip to the United States as a former prime minister, it was an opportunity to give an insight into the events that are happening in Ukraine (and not only in Ukraine), but which have global effects. For Draghi, the war unleashed by the invasion wanted by Vladimir Putin, added to the tensions with China and the increase in inflation, which is dependent on the first two problems, have led to a “paradigm shift” that has managed to “silently shift global geopolitics from competition to conflict”. And the consequences could be long-lasting as “a lower potential growth rate is emerging, which will require policies that lead to budget deficits and higher interest rates.”

For Mario Draghi “the brutal invasion of Ukraine was not an unpredictable act of madness, but a premeditated step in Putin’s delusional strategy” to try to restore Russia’s imperial past. In all of this “there is no alternative for the United States, Europe and its allies but to ensure that Ukraine wins this war. Accepting a Russian victory would deal a fatal blow to Europe”. And he added: “The EU should welcome Ukraine and the Balkan countries and be ready to start a journey with Ukraine that will lead to its accession to NATO”.

The issue of inflation is also linked, at least in part, to the conflict in Ukraine. For Mario Draghi we will have to live with a certain amount of inflation: “The war has contributed to rising inflationary pressures in the short term, but it is also likely to trigger lasting changes that herald higher inflation in the future.” Which adds that central banks “should have diagnosed in advance the return of persistent inflation”, but they “have largely made up for lost time”. Despite this, inflation “is proving to be more resilient than initially assumed” and therefore the fight against the continued rise in prices “will probably require a cautious continuation of monetary tightening, both through even higher interest rates and lengthening the time before that their course may be reversed”.

However, the increase in inflation does not have the same causes everywhere: in the United States it is driven by demand, in Europe it is above all the result of high energy prices. In the EU, underlines the former prime minister, we are witnessing a conflict between companies and workers over who should bear the brunt of it. Businesses, for now, have shifted it onto the shoulders of consumers, “maintaining or even increasing their profits.”

However, Mario Draghi is optimistic: “In the end, central banks will be able to bring the inflation rate back to their targets”, even if “the economy will look very different from what we are used to”.