By Judith Ugwumadu | 13 February 2015

The European Central Bank’s measure to inject billions of euros into the eurozone risks falling on barren ground if governments do not also implement structural reforms to boost growth, ECB executive board member Peter Praet has warned.

Last month, the ECB launched a quantitative easing programme to buy €1.1 trillion worth of investment-grade bonds in a bid to boost growth in the eurozone’s economy and tackle deflation.

However, speaking at a Financial Times open conference yesterday, Praet warned that if firms reduced their own growth expectations at the same time as the central bank expanded its monetary policies, the eurozone would not see ‘the impact we expect and which is required’.

‘It is clear that if our measures are to generate a faster and more sustained recovery then governments also have to play their part. In particular, at both the micro and macro levels, structural reforms are pivotal to encourage firms to capitalise on the easing of financial conditions and undertake new investment projects,’ he said.

‘At the macro level, monetary policy can influence investment through lowering the real interest rate. But there needs to be a fundamental reason to invest, which comes down chiefly to developments in labour participation and total factor productivity.’

He suggested that structural reforms, such as getting unemployed people back into work and increasing access to in-demand goods and services, would raise potential growth.

Citing Spain, Praet said the country had improved its financing conditions together with targeted structural reforms, actions that could lead to stronger-than-expected growth outcomes. 

He urged eurozone governments to take advantage of the ‘window of opportunity’, saying ‘the possibility is there for the whole euro area’.

Members of the European Parliaments have previously said that bond buying-programme should not be seen as a way to avoid structural reforms to EU economies, particularly those in the eurozone.