(Oct 17): European Central Bank Executive Board member Benoit Coeure said euro-area countries risk delaying the region’s economic recovery if they don’t broaden and accelerate their reforms.
“Talking vaguely about structural reforms, but not doing them, is the worst of all worlds,” he said in Riga. “It creates uncertainty over the path of real interest rates, without in tandem raising expectations of future growth.”
The 18-nation euro region is struggling to rekindle growth after a sovereign debt crisis and subsequent austerity measures led to a recession and record unemployment. Concern that the outlook is worsening contributed to a stock-market slide that wiped out about $3.3 trillion in value worldwide this month, and pressure is mounting for further ECB stimulus such as government-bond purchases.
The euro-area economy stagnated in the second quarter and the ECB predicts only a modest expansion through the end of the year. Inflation isn’t seen returning to officials’ goal of just under 2 percent before 2017 and a measure of inflation expectations has continued to drop.
“Today’s low inflation expectations in the region as a whole may indeed be telling us that the approach was on average too staggered, and that it is time to accelerate” reforms, Coeure said. “It makes little sense for European countries to stop reforming now. This would mean taking the pain but missing out on the gain, and it would only make getting out the crisis harder.”
A four-day rout in Greek bonds sent yields to the highest since January, with the selloff starting to infect nations from Ireland to Portugal and larger countries such as France. In Spain, a debt auction fell short of the government’s maximum target yesterday. European stocks rose today, snapping an eight- day losing streak that was the longest since 2003.
Policy makers including ECB President Mario Draghi have urged European governments to step up efforts to put their economies on a more solid footing, complementing an ultra- expansionary monetary policy.
The central bank has cut interest rates to record lows, offered long-term loans to funnel credit to companies and households, and announced an asset-purchase program. Coeure said the central bank will continue to try to expand its balance sheet to support aggregate demand.
German politicians and Bundesbank President Jens Weidmann have argued that the ECB’s measures can hold up reforms by easing the pressure on governments. Weidmann opposed the central bank’s newest measures.
“It is sometimes argued that monetary policy can weaken the incentives to reform,” Coeure said. “I do not share this view.”