ECB’s Praet optimistic on growth, urges restraint on Greece

The European Central Bank’s chief economist voiced optimism about near-term euro zone growth on Wednesday, and called for policymakers to show «verbal discipline» about the crisis in Greece.

Peter Praet, who oversees the ECB’s influential economics department, said its 1 trillion euro bond-buying campaign had been launched at the optimum time when there were signs that a weaker euro and cheaper energy were lifting growth.

However, lower productivity remained a structural issue, while there was also a risk that governments would ease off on much needed reforms if the ECB’s actions created better economic conditions.

“I think it (quantitative easing) was good timing to come at that juncture. I think the big risk is that window will not be seized by governments,» Praet said at the London City Week financial conference.

“We have a cyclical recovery, (but) there are big structural issues that have to be addressed.”

On the crisis in Greece and the worries the country could run out of money in less than a month, Praet refused to be drawn into the argument that the ECB is playing a pivotal role by rationing funding for Greek banks.

Euro zone finance ministers meet on Monday to try to resolve the crisis, but Praet urged both politicians and central bankers to show «verbal discipline» to avoid stoking already high political and financial market tensions.

“I think the euro area pays a high price for the incompleteness of the monetary union… It is basically having a lack of crisis preparation,» Praet, who sits on the ECB’s six- member Executive Board, said.

“The problem is that we are still in a crisis environment.”

He added that one of biggest talking points now at the ECB was the narrowing of the euro zone’s so-called ‘output gap’ — the difference between actual and potential growth — and the impact of that.


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