Europe has made substantial progress in recovering from the credit crisis, reflected in improving market sentiment, but the jury is still out on the eurozone, European Central Bank President Mario Draghi said Friday.
Hailed as the euro's savior for his bond-buying plan that calmed markets last year, Draghi said European governments deserved credit for reducing borrowing and beginning to reform their economies.
Describing 2012 as the year the euro was relaunched, the central banker said the positive market sentiment had yet to work through to the real economy.
"It turned out to be very helpful in removing the risk for the euro as such," Draghi said at the World Economic Forum in Davos, Switzerland, referring to the bond-buying plan. "But we haven't seen an equal momentum on the real side of the economy, that's where we will have to do much more."
His comments came two days after the International Monetary Fund cut its forecast for the eurozone, predicting the region's gross domestic product would contract for a second year running.
Southern European states such as Greece, Spain and Italy are stuck in recession, France and Germany are stagnating, and unemployment across the region has hit record levels.
Draghi said market indexes were pointing to a substantial improvement in financing conditions, and there was evidence of positive financial contagion in the eurozone.
"We don't see this being transmitted into the real economy just yet," he said. "The level of economic activity is stabilizing at very low levels and we see a recovery in the second half of the year."
"We can have a positive development if national governments persevere in their actions both in fiscal consolidation but also on the front of structural reforms," Draghi added.
German Chancellor Angela Merkel said Thursday that Europe must press ahead with economic reform, and become more competitive to restore stability and achieve sustainable growth.