Commissioner Almunia says ECB rates still help growth

Eurozone interest rates still support economic growth despite a series of rises since December 2005, Economic and Monetary Affairs Commissioner Joaquin Almunia said yesterday. In a prepared speech in Athens, he also said that, despite its short history, the European Central Bank (ECB) had established itself as a credible institution. The bank wants to keep inflation below, but close to, 2 percent. Markets expect it will raise rates to 4.0 percent in June from 3.75 percent now, and possibly once more later this year to keep price growth on target in the medium term. «Even after recent interest-rate increases, financing conditions remain favorable, supporting investment plans and also greatly reducing the burden of servicing government debt,» Almunia said. Almunia repeated his earlier calls that the eurozone should take advantage of the current economic upswing to step up product, labor and capital market reforms to boost the area’s potential growth rate, and cut budget deficits. The eurozone needs to grow faster and have healthier public finances because its population is growing older, which will put additional strain on government coffers in coming years. Reforms could raise potential growth in the 13 countries using the euro by 0.5 of a percentage point, he said. Economists and the European Commission estimate the current potential growth rate at between 1.5 and 2.0 percent annually. »The overall pace of reforms is too slow,» Almunia said. Stand by your euro In an apparent reference to criticism of ECB rate policy and the strong euro in France during the country’s presidential election campaign, Almunia said politicians should stand by the euro rather than criticize it. «It is in the interest of European politicians to support our currency in the face of unmerited attacks, and to address common misperceptions rather than fueling populist debate,» he said. He also called for more cohesion in the Eurogroup, the informal body grouping finance ministers from the eurozone that meets monthly to discuss the economy. «Some participants have found it difficult to combine the national and European hats that their membership of the Eurogroup demands,» Almunia said. «At times, a propensity to deflect criticism rather than engage in cooperative solutions has hindered policy discussions,» he said. He urged the Eurogroup to work closely with prospective eurozone members, and to provide guidance and support for necessary reforms on the road to joining the euro. «The strengthening identity of the euro area should never become a barrier between euro area and non-euro area countries,» he said. «In this respect, the Eurogroup must never symbolize division or represent a closed club.» (Reuters)

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