Eurozone governments must push ahead with structural reforms and should not rely on the European Central Bank to fix the economy, the chairman of the bloc’s finance ministers said on Thursday.
Speaking as the ECB held a policy meeting in Frankfurt, Jeroen Dijsselbloem echoed comments last month by the bank’s president Mario Draghi urging governments to focus more on reviving growth while continuing to reform their economies.
The bloc needed to design a growth-friendly fiscal environment, eurogroup head Dijsselbloem told the European Parliament’s economic and monetary committee.
Eurozone finance ministers will meet in Milan on Sept. 12 to continue a debate how to fine-tune existing policies to fix public finances and support growth at the same time.
“Recent economic data confirm that the recovery in the eurozone remains very fragile and uneven,» Dijsselbloem said.
“I believe that recent developments underscore the need to push forwards the growth and reform agenda. Fundamental challenges faced by the euro zone are unchanged,» he added, noting the bloc was facing a threat of a long period of very low inflation.
The economic recovery in the 18 countries sharing the euro unexpectedly stalled in the second quarter while inflation fell to a five-year low in August.
Expectations for news of further stimulus from the ECB later on Thursday are high after Draghi pledged in a speech at last month’s central bankers conference in Jackson Hole to use all available policy tools to avoid a deflationary spiral.
The ECB cut interest rates to a record low in June and has already promised steps to flood markets with cheap funds later this month to revive credit to the 9.6 trillion euro economy.
A Reuters poll pointed to no change in rates on Thursday, and analysts say the bank’s room for manoeuvre for meaningful new policy initiatives is limited, with a possible announcement on a programme to buy asset-backed securities (ABS) viewed as most likely.
Dijsselbloem said the June policy package, including the TLTRO programme of cheap long-term loans, had not been given enough consideration in analyses.
“The results are yet to take place. Let’s evaluate that as we go along,» he said.
Dijsselbloem also said politicians should not expect the ECB’s monetary policy actions to do their work for them, and structural reforms were key.
“Depending very strongly on monetary policy has in itself a number of risks, which may not materialise in the short run, but that you have to deal with in the longer run,» said Dijsselbloem.
Europe is debating how to use existing fiscal rules – written down in the Stability and Growth Pact – and their flexibility to help the uneven recovery.
Shifting the tax burden from labour to boost domestic demand would be one of the options, Dijsselbloem suggested, adding there was space in number of European countries to boost public investment.
“Yes we should flexibility (within existing rules), but it’s not a free ride. Some countries think that by simply using the word flexibility their problems will be and that cannot be the case,» he said. [Reuters]