Eurozone governments warned not to rely solely on ECB
President of European Central Bank Mario Draghi speaks during a news conference in Frankfurt, Germany, Thursday, March 6, 2014, following a meeting of the ECB governing council. The European Central Bank has kept its main interest rate at a record low of 0.25 percent, holding off on more stimulus as economic indicators suggest the modest recovery is gaining strength. (AP Photo/Michael Probst)©AP
Mario Draghi
Senior European policy makers and business people have expressed concern that the debate over quantitative easing by the European Central Bank risks taking the pressure off politicians to pursue structural reforms.
“Monetary policy cannot do everything,” said a senior ECB official at the Ambrosetti Forum in Cernobbio, on Lake Como, this weekend. “People expect too much from central banks.”
The concerns echo a sense of growing frustration at the ECB that governments are keen to keep attention on the central bank’s reluctance to pursue easier monetary policy,to address low inflation, as an explanation for the eurozone’s weak economic performance. At 0.5 per cent in March, inflation in the eurozone is running well below the ECB’s target rate of just below 2 per cent.
On Thursday, Mario Draghi, the ECB’s president, said he would back more radical measures, including quantitative easing, to cope with “too prolonged a period of low inflation”. But he urged governments not to rely too heavily on central bank actions to restore growth.
“Monetary policy is important, but it’s not the only thing,” he said at Thursday’s press conference. “Structural reforms come first, because many of the problems of the euro area are structural.”
Asked about France’s request for more time to meet its 3 per cent deficit target, the ECB president called on governments not to unravel their fiscal consolidation efforts. “It is important that fiscal consolidation [ . . .] should adhere to the pre-agreed rules. Otherwise, trust is undermined,” Mr Draghi said.
Business people in Italy and elsewhere said monetary policy was not the key to stimulating growth.
“There have been years of inaction and there are huge structural issues,” said Rodolfo De Benedetti, chief executive of Italy’s industrial group CIR.
Marco Tronchetti Provera, chairman and chief executive of Pirelli, the tyremaker, called for more ambitious action on labour market reform in particular, to improve competitiveness.
“Competitiveness is the priority to create new jobs,” he said.
Company bosses across Europe have said that low inflation is not high on their list of concerns.
“I have few worries about deflation in Europe,” said Joe Kaeser, chief executive of Siemens, the German engineering conglomerate, in February.
“There is no genuine serious deflation risk,” agreed Jim O’Neill, economic adviser to the International Finance Corporation, and former chief economist at Goldman Sachs, at the Ambrosetti forum.
Lorenzo Bini Smaghi, an ECB executive board member until December 2011 and now chairman of Italian gas company Snam, said the unconventional monetary easing measures under discussion, such as buying bank loans, were untested and might not succeed. He added that assessing the value the loans the ECB would buy was complicated and that, anyway, banks might not be willing to sell them.
“We still overburden monetary policy with the macro challenges [Europe faces],” said Jacob Frenkel, chairman of JPMorgan International and a former governor of the Central Bank of Israel. “The solution to unemployment is not in monetary policy. It’s a mistake to put all the expectations on the ECB.”